Correlation Between Chevron Corp and Shell PLC

Can any of the company-specific risk be diversified away by investing in both Chevron Corp and Shell PLC 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 Shell PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chevron Corp and Shell PLC, you can compare the effects of market volatilities on Chevron Corp and Shell PLC 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 Shell PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chevron Corp and Shell PLC.

Diversification Opportunities for Chevron Corp and Shell PLC

0.85

Correlation Coefficient

Chevron Corp  Shell PLC

Very poor diversification

The 3 months correlation between Chevron and Shell is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and Shell PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC 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 Shell PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell PLC has no effect on the direction of Chevron Corp i.e., Chevron Corp and Shell PLC go up and down completely randomly.

Pair Corralation between Chevron Corp and Shell PLC

Considering the 90-day investment horizon Chevron Corp is expected to generate 16.44 times less return on investment than Shell PLC. But when comparing it to its historical volatility, Chevron Corp is 1.68 times less risky than Shell PLC. It trades about 0.0 of its potential returns per unit of risk. Shell PLC is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,719  in Shell PLC on January 31, 2024 and sell it today you would earn a total of  787.00  from holding Shell PLC or generate 28.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Chevron Corp  vs.  Shell PLC

Chevron Corp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Chevron Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Shell PLC

Risk-Adjusted Performance

6 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shell PLC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Shell PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chevron Corp and Shell PLC

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

The idea behind Chevron Corp and Shell PLC 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.

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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.