Correlation Between Chevron Corp and Energy Select

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

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

Diversification Opportunities for Chevron Corp and Energy Select

0.94

Correlation Coefficient

Chevron Corp  Energy Select

Almost no diversification

The 3 months correlation between Chevron and Energy is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and Energy Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Select Sector 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 Energy Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Select Sector has no effect on the direction of Chevron Corp i.e., Chevron Corp and Energy Select go up and down completely randomly.

Pair Corralation between Chevron Corp and Energy Select

Considering the 90-day investment horizon Chevron Corp is expected to under-perform the Energy Select. But the stock apears to be less risky and, when comparing its historical volatility, Chevron Corp is 1.01 times less risky than Energy Select. The stock trades about -0.05 of its potential returns per unit of risk. The Energy Select Sector is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7,825  in Energy Select Sector on February 5, 2025 and sell it today you would earn a total of  227.00  from holding Energy Select Sector or generate 2.9% return on investment over 90 days.

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

Chevron Corp  vs.  Energy Select Sector

Chevron Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chevron Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Energy Select Sector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energy Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with Chevron Corp and Energy Select

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

The idea behind Chevron Corp and Energy Select Sector 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.