Correlation Between Invictus Energy and PetroShale

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

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

Diversification Opportunities for Invictus Energy and PetroShale

0.78

Correlation Coefficient

Invictus Energy  PetroShale

Poor diversification

The 3 months correlation between Invictus and PetroShale is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Invictus Energy Limited and PetroShale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroShale and Invictus 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 Invictus Energy Limited are associated (or correlated) with PetroShale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroShale has no effect on the direction of Invictus Energy i.e., Invictus Energy and PetroShale go up and down completely randomly.

Pair Corralation between Invictus Energy and PetroShale

Assuming the 90 days horizon Invictus Energy Limited is expected to generate 3.12 times more return on investment than PetroShale. However, Invictus Energy is 3.12 times more volatile than PetroShale. It trades about 0.0 of its potential returns per unit of risk. PetroShale is currently generating about -0.15 per unit of risk. If you would invest  5.25  in Invictus Energy Limited on September 26, 2024 and sell it today you would lose (0.75) from holding Invictus Energy Limited or give up 14.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Invictus Energy Limited  vs.  PetroShale

Invictus Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

PetroShale

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PetroShale has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Invictus Energy and PetroShale

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

The idea behind Invictus Energy Limited and PetroShale 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.