Correlation Between Natural Gas and Tidewater

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

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

Diversification Opportunities for Natural Gas and Tidewater

-0.65

Correlation Coefficient

Natural Gas  Tidewater

Excellent diversification

The 3 months correlation between Natural and Tidewater is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Natural Gas Services and Tidewater in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tidewater and Natural Gas 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 Natural Gas Services are associated (or correlated) with Tidewater. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tidewater has no effect on the direction of Natural Gas i.e., Natural Gas and Tidewater go up and down completely randomly.

Pair Corralation between Natural Gas and Tidewater

Considering the 90-day investment horizon Natural Gas Services is expected to generate 0.97 times more return on investment than Tidewater. However, Natural Gas Services is 1.03 times less risky than Tidewater. It trades about 0.19 of its potential returns per unit of risk. Tidewater is currently generating about -0.23 per unit of risk. If you would invest  2,040  in Natural Gas Services on September 2, 2024 and sell it today you would earn a total of  736.00  from holding Natural Gas Services or generate 36.08% return on investment over 90 days.

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

Natural Gas Services  vs.  Tidewater

Natural Gas Services

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Gas Services are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Natural Gas unveiled solid returns over the last few months and may actually be approaching a breakup point.

Tidewater

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tidewater has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Natural Gas and Tidewater

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

The idea behind Natural Gas Services and Tidewater 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.