Correlation Between Vaalco Energy and FEC Resources

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

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

Diversification Opportunities for Vaalco Energy and FEC Resources

0.7

Correlation Coefficient

Vaalco Energy  FEC Resources

Poor diversification

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

Pair Corralation between Vaalco Energy and FEC Resources

Considering the 90-day investment horizon Vaalco Energy is expected to under-perform the FEC Resources. But the stock apears to be less risky and, when comparing its historical volatility, Vaalco Energy is 12.52 times less risky than FEC Resources. The stock trades about -0.13 of its potential returns per unit of risk. The FEC Resources is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.17  in FEC Resources on September 18, 2024 and sell it today you would lose (0.01) from holding FEC Resources or give up 5.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Vaalco Energy  vs.  FEC Resources

Vaalco Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vaalco Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

FEC Resources

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Vaalco Energy and FEC Resources

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

The idea behind Vaalco Energy and FEC Resources 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..