Correlation Between Oil and Matco Foods

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

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

Diversification Opportunities for Oil and Matco Foods

0.65

Correlation Coefficient

Oil  Matco Foods

Poor diversification

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

Pair Corralation between Oil and Matco Foods

Assuming the 90 days trading horizon Oil and Gas is expected to generate 0.7 times more return on investment than Matco Foods. However, Oil and Gas is 1.42 times less risky than Matco Foods. It trades about 0.31 of its potential returns per unit of risk. Matco Foods is currently generating about 0.04 per unit of risk. If you would invest  12,876  in Oil and Gas on September 3, 2024 and sell it today you would earn a total of  6,649  from holding Oil and Gas or generate 51.64% return on investment over 90 days.

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

Oil and Gas  vs.  Matco Foods

Oil and Gas

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Oil and Gas are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Matco Foods

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Matco Foods are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Matco Foods may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Oil and Matco Foods

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

The idea behind Oil and Gas and Matco Foods 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.