Correlation Between Gemz Corp and XCana Petroleum

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

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

Diversification Opportunities for Gemz Corp and XCana Petroleum

-0.15

Correlation Coefficient

Gemz Corp  XCana Petroleum

Good diversification

The 3 months correlation between Gemz and XCana is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Gemz Corp and XCana Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XCana Petroleum and Gemz Corp 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 Gemz Corp are associated (or correlated) with XCana Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XCana Petroleum has no effect on the direction of Gemz Corp i.e., Gemz Corp and XCana Petroleum go up and down completely randomly.

Pair Corralation between Gemz Corp and XCana Petroleum

Given the investment horizon of 90 days Gemz Corp is expected to generate 1.62 times less return on investment than XCana Petroleum. But when comparing it to its historical volatility, Gemz Corp is 1.8 times less risky than XCana Petroleum. It trades about 0.1 of its potential returns per unit of risk. XCana Petroleum is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3.61  in XCana Petroleum on September 5, 2024 and sell it today you would lose (1.01) from holding XCana Petroleum or give up 27.98% of portfolio value over 90 days.

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

Gemz Corp  vs.  XCana Petroleum

Gemz Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gemz Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Gemz Corp reported solid returns over the last few months and may actually be approaching a breakup point.

XCana Petroleum

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Gemz Corp and XCana Petroleum

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

The idea behind Gemz Corp and XCana 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.