Correlation Between GeoPark and Battalion Oil

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

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

Diversification Opportunities for GeoPark and Battalion Oil

-0.55

Correlation Coefficient

GeoPark  Battalion Oil

Excellent diversification

The 3 months correlation between GeoPark and Battalion is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding GeoPark and Battalion Oil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Battalion Oil Corp and GeoPark 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 GeoPark are associated (or correlated) with Battalion Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Battalion Oil Corp has no effect on the direction of GeoPark i.e., GeoPark and Battalion Oil go up and down completely randomly.

Pair Corralation between GeoPark and Battalion Oil

Given the investment horizon of 90 days GeoPark is expected to generate 1.86 times less return on investment than Battalion Oil. But when comparing it to its historical volatility, GeoPark is 5.51 times less risky than Battalion Oil. It trades about 0.18 of its potential returns per unit of risk. Battalion Oil Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  305.00  in Battalion Oil Corp on September 17, 2024 and sell it today you would lose (3.00) from holding Battalion Oil Corp or give up 0.98% of portfolio value over 90 days.

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

GeoPark  vs.  Battalion Oil Corp

GeoPark

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GeoPark are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, GeoPark disclosed solid returns over the last few months and may actually be approaching a breakup point.

Battalion Oil Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Battalion Oil Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Battalion Oil disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GeoPark and Battalion Oil

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

The idea behind GeoPark and Battalion Oil Corp 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.