Correlation Between Occidental Petroleum and North European
Can any of the company-specific risk be diversified away by investing in both Occidental Petroleum and North European 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 Occidental Petroleum and North European into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Occidental Petroleum and North European Oil, you can compare the effects of market volatilities on Occidental Petroleum and North European 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 Occidental Petroleum with a short position of North European. Check out your portfolio center. Please also check ongoing floating volatility patterns of Occidental Petroleum and North European.
Diversification Opportunities for Occidental Petroleum and North European
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Occidental and North is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Occidental Petroleum and North European Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North European Oil and Occidental Petroleum 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 Occidental Petroleum are associated (or correlated) with North European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North European Oil has no effect on the direction of Occidental Petroleum i.e., Occidental Petroleum and North European go up and down completely randomly.
Pair Corralation between Occidental Petroleum and North European
Considering the 90-day investment horizon Occidental Petroleum is expected to generate 0.39 times more return on investment than North European. However, Occidental Petroleum is 2.55 times less risky than North European. It trades about -0.02 of its potential returns per unit of risk. North European Oil is currently generating about -0.05 per unit of risk. If you would invest 5,868 in Occidental Petroleum on August 31, 2024 and sell it today you would lose (810.00) from holding Occidental Petroleum or give up 13.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Occidental Petroleum vs. North European Oil
Performance |
| Timeline |
| Occidental Petroleum |
| North European Oil |
Occidental Petroleum and North European Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Occidental Petroleum and North European
The main advantage of trading using opposite Occidental Petroleum and North European positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Occidental Petroleum position performs unexpectedly, North European 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 North European will offset losses from the drop in North European's long position.| Occidental Petroleum vs. Coterra Energy | Occidental Petroleum vs. Diamondback Energy | Occidental Petroleum vs. ConocoPhillips | Occidental Petroleum vs. EOG Resources |
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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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