Correlation Between Gulf Keystone and MEG Energy

Can any of the company-specific risk be diversified away by investing in both Gulf Keystone and MEG Energy 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 MEG Energy 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 MEG Energy Corp, you can compare the effects of market volatilities on Gulf Keystone and MEG Energy 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 MEG Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gulf Keystone and MEG Energy.

Diversification Opportunities for Gulf Keystone and MEG Energy

-0.06

Correlation Coefficient

Gulf Keystone  MEG Energy

Good diversification

The 3 months correlation between Gulf and MEG is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Gulf Keystone Petroleum and MEG Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MEG Energy Corp 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 MEG Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MEG Energy Corp has no effect on the direction of Gulf Keystone i.e., Gulf Keystone and MEG Energy go up and down completely randomly.

Pair Corralation between Gulf Keystone and MEG Energy

Assuming the 90 days horizon Gulf Keystone Petroleum is expected to generate 2.05 times more return on investment than MEG Energy. However, Gulf Keystone is 2.05 times more volatile than MEG Energy Corp. It trades about 0.07 of its potential returns per unit of risk. MEG Energy Corp is currently generating about -0.02 per unit of risk. If you would invest  160.00  in Gulf Keystone Petroleum on August 31, 2024 and sell it today you would earn a total of  23.00  from holding Gulf Keystone Petroleum or generate 14.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Gulf Keystone Petroleum  vs.  MEG Energy Corp

Gulf Keystone Petroleum

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Keystone Petroleum are ranked lower than 5 (%) 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.

MEG Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MEG Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, MEG Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Gulf Keystone and MEG Energy

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

The idea behind Gulf Keystone Petroleum and MEG Energy 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.