Correlation Between Evolution Petroleum and Denbury Resources

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

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

Diversification Opportunities for Evolution Petroleum and Denbury Resources

-0.53

Correlation Coefficient

Evolution Petroleum  Denbury Resources

Excellent diversification

The 3 months correlation between Evolution and Denbury is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Evolution Petroleum and Denbury Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Denbury Resources and Evolution Petroleum 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 Evolution Petroleum are associated (or correlated) with Denbury Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Denbury Resources has no effect on the direction of Evolution Petroleum i.e., Evolution Petroleum and Denbury Resources go up and down completely randomly.

Pair Corralation between Evolution Petroleum and Denbury Resources

Considering the 90-day investment horizon Evolution Petroleum is expected to under-perform the Denbury Resources. In addition to that, Evolution Petroleum is 1.48 times more volatile than Denbury Resources. It trades about 0.0 of its total potential returns per unit of risk. Denbury Resources is currently generating about 0.03 per unit of volatility. If you would invest  8,175  in Denbury Resources on September 21, 2024 and sell it today you would earn a total of  478.00  from holding Denbury Resources or generate 5.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	28.28%
Values	Daily Returns

Evolution Petroleum  vs.  Denbury Resources

Evolution Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evolution Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Denbury Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Denbury Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Denbury Resources is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Evolution Petroleum and Denbury Resources

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

The idea behind Evolution Petroleum and Denbury 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.

Check out your portfolio center.

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.