Correlation Between Petrofac and Recon Technology

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

By analyzing existing cross correlation between Petrofac Ltd ADR and Recon Technology, you can compare the effects of market volatilities on Petrofac and Recon Technology 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 Petrofac with a short position of Recon Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petrofac and Recon Technology.

Diversification Opportunities for Petrofac and Recon Technology

0.37

Correlation Coefficient

Petrofac  Recon Technology

Weak diversification

The 3 months correlation between Petrofac and Recon is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Petrofac Ltd ADR and Recon Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Recon Technology and Petrofac 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 Petrofac Ltd ADR are associated (or correlated) with Recon Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Recon Technology has no effect on the direction of Petrofac i.e., Petrofac and Recon Technology go up and down completely randomly.

Pair Corralation between Petrofac and Recon Technology

Assuming the 90 days horizon Petrofac Ltd ADR is expected to under-perform the Recon Technology. In addition to that, Petrofac is 1.57 times more volatile than Recon Technology. It trades about -0.04 of its total potential returns per unit of risk. Recon Technology is currently generating about 0.1 per unit of volatility. If you would invest  141.00  in Recon Technology on August 31, 2024 and sell it today you would earn a total of  103.00  from holding Recon Technology or generate 73.05% return on investment over 90 days.

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

Petrofac Ltd ADR  vs.  Recon Technology

Petrofac ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petrofac Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Recon Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Recon Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Petrofac and Recon Technology

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

The idea behind Petrofac Ltd ADR and Recon Technology 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.