Correlation Between Energy Resources and Medibank Private

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

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

Diversification Opportunities for Energy Resources and Medibank Private

-0.44

Correlation Coefficient

Energy Resources  Medibank Private

Very good diversification

The 3 months correlation between Energy and Medibank is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Energy Resources and Medibank Private in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medibank Private and Energy Resources 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 Energy Resources are associated (or correlated) with Medibank Private. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medibank Private has no effect on the direction of Energy Resources i.e., Energy Resources and Medibank Private go up and down completely randomly.

Pair Corralation between Energy Resources and Medibank Private

Assuming the 90 days trading horizon Energy Resources is expected to generate 34.33 times more return on investment than Medibank Private. However, Energy Resources is 34.33 times more volatile than Medibank Private. It trades about 0.1 of its potential returns per unit of risk. Medibank Private is currently generating about 0.05 per unit of risk. If you would invest  0.60  in Energy Resources on September 24, 2024 and sell it today you would lose (0.40) from holding Energy Resources or give up 66.67% of portfolio value over 90 days.

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

Energy Resources  vs.  Medibank Private

Energy Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Energy Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Medibank Private

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Medibank Private are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, Medibank Private is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Energy Resources and Medibank Private

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

The idea behind Energy Resources and Medibank Private 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.