Correlation Between GeoPark and Riley Exploration

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

By analyzing existing cross correlation between GeoPark and Riley Exploration Permian, you can compare the effects of market volatilities on GeoPark and Riley Exploration 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 Riley Exploration. Check out your portfolio center. Please also check ongoing floating volatility patterns of GeoPark and Riley Exploration.

Diversification Opportunities for GeoPark and Riley Exploration

0.59

Correlation Coefficient

GeoPark  Riley Exploration

Very weak diversification

The 3 months correlation between GeoPark and Riley is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding GeoPark and Riley Exploration Permian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Riley Exploration Permian 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 Riley Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Riley Exploration Permian has no effect on the direction of GeoPark i.e., GeoPark and Riley Exploration go up and down completely randomly.

Pair Corralation between GeoPark and Riley Exploration

Given the investment horizon of 90 days GeoPark is expected to generate 1.71 times less return on investment than Riley Exploration. In addition to that, GeoPark is 1.14 times more volatile than Riley Exploration Permian. It trades about 0.1 of its total potential returns per unit of risk. Riley Exploration Permian is currently generating about 0.19 per unit of volatility. If you would invest  2,677  in Riley Exploration Permian on September 1, 2024 and sell it today you would earn a total of  833.00  from holding Riley Exploration Permian or generate 31.12% return on investment over 90 days.

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

GeoPark  vs.  Riley Exploration Permian

GeoPark

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GeoPark are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, GeoPark disclosed solid returns over the last few months and may actually be approaching a breakup point.

Riley Exploration Permian

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Riley Exploration Permian are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Riley Exploration showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GeoPark and Riley Exploration

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

The idea behind GeoPark and Riley Exploration Permian 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.