Correlation Between East West and California Resources
Can any of the company-specific risk be diversified away by investing in both East West and California Resources at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining East West and California Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between East West Petroleum and California Resources Corp, you can compare the effects of market volatilities on East West and California Resources and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in East West with a short position of California Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and California Resources.
Diversification Opportunities for East West and California Resources
0.14 | Correlation Coefficient |
Average diversification
The 3 months correlation between East and California is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding East West Petroleum and California Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Resources Corp and East West is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on East West Petroleum are associated (or correlated) with California Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Resources Corp has no effect on the direction of East West i.e., East West and California Resources go up and down completely randomly.
Pair Corralation between East West and California Resources
Assuming the 90 days horizon East West Petroleum is expected to generate 13.62 times more return on investment than California Resources. However, East West is 13.62 times more volatile than California Resources Corp. It trades about 0.2 of its potential returns per unit of risk. California Resources Corp is currently generating about -0.08 per unit of risk. If you would invest 2.00 in East West Petroleum on October 15, 2024 and sell it today you would earn a total of 1.00 from holding East West Petroleum or generate 50.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
East West Petroleum vs. California Resources Corp
Performance |
| Timeline |
| East West Petroleum |
| California Resources Corp |
East West and California Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with East West and California Resources
The main advantage of trading using opposite East West and California Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East West position performs unexpectedly, California Resources can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in California Resources will offset losses from the drop in California Resources' long position.| East West vs. Stamper Oil Gas | East West vs. Valeura Energy | East West vs. Invictus Energy Limited | East West vs. Africa Oil Corp |
| California Resources vs. Berry Petroleum Corp | California Resources vs. Magnolia Oil Gas | California Resources vs. Comstock Resources | California Resources vs. Gulfport Energy Operating |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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