Correlation Between Beach Energy and Key Petroleum

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

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

Diversification Opportunities for Beach Energy and Key Petroleum

-0.52

Correlation Coefficient

Beach Energy  Key Petroleum

Excellent diversification

The 3 months correlation between Beach and Key is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Beach Energy and Key Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Key Petroleum and Beach Energy 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 Beach Energy are associated (or correlated) with Key Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Key Petroleum has no effect on the direction of Beach Energy i.e., Beach Energy and Key Petroleum go up and down completely randomly.

Pair Corralation between Beach Energy and Key Petroleum

Assuming the 90 days trading horizon Beach Energy is expected to under-perform the Key Petroleum. But the stock apears to be less risky and, when comparing its historical volatility, Beach Energy is 4.32 times less risky than Key Petroleum. The stock trades about -0.01 of its potential returns per unit of risk. The Key Petroleum is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  15.00  in Key Petroleum on September 23, 2024 and sell it today you would lose (8.30) from holding Key Petroleum or give up 55.33% of portfolio value over 90 days.

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

Beach Energy  vs.  Key Petroleum

Beach Energy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beach Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Beach Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Key Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Key Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Beach Energy and Key Petroleum

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

The idea behind Beach Energy and Key Petroleum 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..