Correlation Between International Petroleum and Gear Energy

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

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

Diversification Opportunities for International Petroleum and Gear Energy

0.88

Correlation Coefficient

International Petroleum  Gear Energy

Very poor diversification

The 3 months correlation between International and Gear is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding International Petroleum Corp and Gear Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gear Energy and International Petroleum 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 International Petroleum Corp are associated (or correlated) with Gear Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gear Energy has no effect on the direction of International Petroleum i.e., International Petroleum and Gear Energy go up and down completely randomly.

Pair Corralation between International Petroleum and Gear Energy

Assuming the 90 days trading horizon International Petroleum Corp is expected to under-perform the Gear Energy. But the stock apears to be less risky and, when comparing its historical volatility, International Petroleum Corp is 1.16 times less risky than Gear Energy. The stock trades about -0.09 of its potential returns per unit of risk. The Gear Energy is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  62.00  in Gear Energy on September 4, 2024 and sell it today you would lose (4.00) from holding Gear Energy or give up 6.45% of portfolio value over 90 days.

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

International Petroleum Corp  vs.  Gear Energy

International Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Petroleum Corp 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 basic 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.

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 very healthy technical and fundamental indicators, Gear Energy is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with International Petroleum and Gear Energy

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

The idea behind International Petroleum Corp and Gear Energy 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..