Correlation Between Gear Energy and Yangarra Resources

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

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

Diversification Opportunities for Gear Energy and Yangarra Resources

0.71

Correlation Coefficient

Gear Energy  Yangarra Resources

Poor diversification

The 3 months correlation between Gear and Yangarra is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Gear Energy and Yangarra Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yangarra Resources and Gear Energy 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 Gear Energy are associated (or correlated) with Yangarra Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yangarra Resources has no effect on the direction of Gear Energy i.e., Gear Energy and Yangarra Resources go up and down completely randomly.

Pair Corralation between Gear Energy and Yangarra Resources

Assuming the 90 days trading horizon Gear Energy is expected to generate 0.98 times more return on investment than Yangarra Resources. However, Gear Energy is 1.02 times less risky than Yangarra Resources. It trades about 0.09 of its potential returns per unit of risk. Yangarra Resources is currently generating about 0.03 per unit of risk. If you would invest  52.00  in Gear Energy on September 3, 2024 and sell it today you would earn a total of  2.00  from holding Gear Energy or generate 3.85% return on investment over 90 days.

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

Gear Energy  vs.  Yangarra Resources

Gear Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gear Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Yangarra Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yangarra Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Yangarra Resources is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Gear Energy and Yangarra Resources

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

The idea behind Gear Energy and Yangarra Resources 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.