Correlation Between North European and Vital Energy

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

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

Diversification Opportunities for North European and Vital Energy

-0.6

Correlation Coefficient

North European  Vital Energy

Excellent diversification

The 3 months correlation between North and Vital is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding North European Oil and Vital Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vital Energy and North European 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 North European Oil are associated (or correlated) with Vital Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vital Energy has no effect on the direction of North European i.e., North European and Vital Energy go up and down completely randomly.

Pair Corralation between North European and Vital Energy

Considering the 90-day investment horizon North European Oil is expected to under-perform the Vital Energy. But the stock apears to be less risky and, when comparing its historical volatility, North European Oil is 1.07 times less risky than Vital Energy. The stock trades about -0.11 of its potential returns per unit of risk. The Vital Energy is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,643  in Vital Energy on September 12, 2024 and sell it today you would earn a total of  418.00  from holding Vital Energy or generate 15.82% return on investment over 90 days.

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

North European Oil  vs.  Vital Energy

North European Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days North European Oil 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 basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Vital Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vital Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, Vital Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North European and Vital Energy

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

The idea behind North European Oil and Vital 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.