Correlation Between Gulf Keystone and EQT

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

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

Diversification Opportunities for Gulf Keystone and EQT

0.8

Correlation Coefficient

Gulf Keystone  EQT

Very poor diversification

The 3 months correlation between Gulf and EQT is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Gulf Keystone Petroleum and EQT Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EQT Corporation and Gulf Keystone 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 Gulf Keystone Petroleum are associated (or correlated) with EQT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EQT Corporation has no effect on the direction of Gulf Keystone i.e., Gulf Keystone and EQT go up and down completely randomly.

Pair Corralation between Gulf Keystone and EQT

Assuming the 90 days horizon Gulf Keystone Petroleum is expected to generate 1.78 times more return on investment than EQT. However, Gulf Keystone is 1.78 times more volatile than EQT Corporation. It trades about 0.13 of its potential returns per unit of risk. EQT Corporation is currently generating about 0.22 per unit of risk. If you would invest  142.00  in Gulf Keystone Petroleum on September 17, 2024 and sell it today you would earn a total of  45.00  from holding Gulf Keystone Petroleum or generate 31.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.92%
Values	Daily Returns

Gulf Keystone Petroleum  vs.  EQT Corp.

Gulf Keystone Petroleum

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Keystone Petroleum are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Gulf Keystone reported solid returns over the last few months and may actually be approaching a breakup point.

EQT Corporation

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in EQT Corporation are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, EQT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gulf Keystone and EQT

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

The idea behind Gulf Keystone Petroleum and EQT Corporation 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.