Correlation Between APA and Petroreconcavo

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

By analyzing existing cross correlation between APA Corporation and Petroreconcavo SA, you can compare the effects of market volatilities on APA and Petroreconcavo 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 APA with a short position of Petroreconcavo. Check out your portfolio center. Please also check ongoing floating volatility patterns of APA and Petroreconcavo.

Diversification Opportunities for APA and Petroreconcavo

-0.14

Correlation Coefficient

APA  Petroreconcavo

Good diversification

The 3 months correlation between APA and Petroreconcavo is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and Petroreconcavo SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petroreconcavo SA and APA 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 APA Corporation are associated (or correlated) with Petroreconcavo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petroreconcavo SA has no effect on the direction of APA i.e., APA and Petroreconcavo go up and down completely randomly.

Pair Corralation between APA and Petroreconcavo

Assuming the 90 days trading horizon APA Corporation is expected to generate 1.06 times more return on investment than Petroreconcavo. However, APA is 1.06 times more volatile than Petroreconcavo SA. It trades about -0.03 of its potential returns per unit of risk. Petroreconcavo SA is currently generating about -0.03 per unit of risk. If you would invest  13,270  in APA Corporation on September 23, 2024 and sell it today you would lose (816.00) from holding APA Corporation or give up 6.15% of portfolio value over 90 days.

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

APA Corp.  vs.  Petroreconcavo SA

APA Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days APA Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, APA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Petroreconcavo SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petroreconcavo SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Petroreconcavo is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with APA and Petroreconcavo

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

The idea behind APA Corporation and Petroreconcavo SA 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.