Correlation Between Chevron Corp and Adobe Systems

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Can any of the company-specific risk be diversified away by investing in both Chevron Corp and Adobe Systems 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 Chevron Corp and Adobe Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chevron Corp and Adobe Systems, you can compare the effects of market volatilities on Chevron Corp and Adobe Systems 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 Chevron Corp with a short position of Adobe Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron Corp and Adobe Systems.

Diversification Opportunities for Chevron Corp and Adobe Systems

0.54
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Chevron and Adobe is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and Adobe Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adobe Systems and Chevron Corp 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 Chevron Corp are associated (or correlated) with Adobe Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adobe Systems has no effect on the direction of Chevron Corp i.e., Chevron Corp and Adobe Systems go up and down completely randomly.

Pair Corralation between Chevron Corp and Adobe Systems

Considering the 90-day investment horizon Chevron Corp is expected to under-perform the Adobe Systems. In addition to that, Chevron Corp is 1.25 times more volatile than Adobe Systems. It trades about -0.01 of its total potential returns per unit of risk. Adobe Systems is currently generating about 0.21 per unit of volatility. If you would invest  37,692  in Adobe Systems on May 16, 2022 and sell it today you would earn a total of  6,875  from holding Adobe Systems or generate 18.24% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy97.67%
ValuesDaily Returns

Chevron Corp  vs.  Adobe Systems

 Performance (%) 
       Timeline  
Chevron Corp 
Chevron Performance
0 of 100
Over the last 90 days Chevron Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Chevron Corp is not utilizing all of its potentials. The new stock price disturbance, may contribute to short-term losses for the investors.

Chevron Price Channel

Adobe Systems 
Adobe Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Adobe Systems are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Adobe Systems may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Adobe Price Channel

Chevron Corp and Adobe Systems Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Chevron Corp and Adobe Systems

The main advantage of trading using opposite Chevron Corp and Adobe Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron Corp position performs unexpectedly, Adobe Systems 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 Adobe Systems will offset losses from the drop in Adobe Systems' long position.
The idea behind Chevron Corp and Adobe Systems pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Adobe Systems

Pair trading matchups for Adobe Systems

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The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Adobe Systems as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Adobe Systems' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Adobe Systems' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Adobe Systems.
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 Analyst Recommendations module to analyst recommendations and target price estimates broken down by several categories.

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