Correlation Between Magnolia Oil and Gran Tierra

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

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

Diversification Opportunities for Magnolia Oil and Gran Tierra

0.05

Correlation Coefficient

Magnolia Oil  Gran Tierra

Significant diversification

The 3 months correlation between Magnolia and Gran is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Magnolia Oil Gas and Gran Tierra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gran Tierra Energy and Magnolia Oil 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 Magnolia Oil Gas are associated (or correlated) with Gran Tierra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gran Tierra Energy has no effect on the direction of Magnolia Oil i.e., Magnolia Oil and Gran Tierra go up and down completely randomly.

Pair Corralation between Magnolia Oil and Gran Tierra

Considering the 90-day investment horizon Magnolia Oil Gas is expected to under-perform the Gran Tierra. But the stock apears to be less risky and, when comparing its historical volatility, Magnolia Oil Gas is 1.94 times less risky than Gran Tierra. The stock trades about -0.33 of its potential returns per unit of risk. The Gran Tierra Energy is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  624.00  in Gran Tierra Energy on September 19, 2024 and sell it today you would earn a total of  23.00  from holding Gran Tierra Energy or generate 3.69% return on investment over 90 days.

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

Magnolia Oil Gas  vs.  Gran Tierra Energy

Magnolia Oil Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magnolia Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Magnolia Oil is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Gran Tierra Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gran Tierra Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Gran Tierra may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Magnolia Oil and Gran Tierra

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

The idea behind Magnolia Oil Gas and Gran Tierra 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.

Check out your portfolio center.

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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.