Correlation Between PetroShale and GeoPark

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

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

Diversification Opportunities for PetroShale and GeoPark

-0.26

Correlation Coefficient

PetroShale  GeoPark

Very good diversification

The 3 months correlation between PetroShale and GeoPark is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding PetroShale and GeoPark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GeoPark and PetroShale 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 PetroShale are associated (or correlated) with GeoPark. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GeoPark has no effect on the direction of PetroShale i.e., PetroShale and GeoPark go up and down completely randomly.

Pair Corralation between PetroShale and GeoPark

Assuming the 90 days horizon PetroShale is expected to under-perform the GeoPark. But the otc stock apears to be less risky and, when comparing its historical volatility, PetroShale is 2.19 times less risky than GeoPark. The otc stock trades about -0.21 of its potential returns per unit of risk. The GeoPark is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  784.00  in GeoPark on September 1, 2024 and sell it today you would earn a total of  186.00  from holding GeoPark or generate 23.72% return on investment over 90 days.

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

PetroShale  vs.  GeoPark

PetroShale

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PetroShale has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

GeoPark

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GeoPark are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, GeoPark disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroShale and GeoPark

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

The idea behind PetroShale and GeoPark 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.