Correlation Between First American and Chevron Corp

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

Diversification Opportunities for First American and Chevron Corp

-0.7
  Correlation Coefficient

Excellent diversification

The 3 months correlation between First and Chevron is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding First American Government and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp and First American 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 First American Government are associated (or correlated) with Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of First American i.e., First American and Chevron Corp go up and down completely randomly.

Pair Corralation between First American and Chevron Corp

Assuming the 90 days horizon First American Government is expected to under-perform the Chevron Corp. In addition to that, First American is 4.66 times more volatile than Chevron Corp. It trades about -0.03 of its total potential returns per unit of risk. Chevron Corp is currently generating about 0.14 per unit of volatility. If you would invest  14,277  in Chevron Corp on May 9, 2022 and sell it today you would earn a total of  1,087  from holding Chevron Corp or generate 7.61% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy95.65%
ValuesDaily Returns

First American Government  vs.  Chevron Corp

 Performance (%) 
       Timeline  
First American Government 
First Performance
13 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in First American Government are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly uncertain basic indicators, First American showed solid returns over the last few months and may actually be approaching a breakup point.

First Price Channel

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 latest stock price disturbance, may contribute to short-term losses for the investors.

Chevron Price Channel

First American and Chevron Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with First American and Chevron Corp

The main advantage of trading using opposite First American and Chevron Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First American position performs unexpectedly, Chevron Corp 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 Chevron Corp will offset losses from the drop in Chevron Corp's long position.

First American Government

Pair trading matchups for First American

The idea behind First American Government and Chevron Corp 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.
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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.

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