Correlation Between PetroShale and International Petroleum

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

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

Diversification Opportunities for PetroShale and International Petroleum

0.9

Correlation Coefficient

PetroShale  International Petroleum

Almost no diversification

The 3 months correlation between PetroShale and International is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding PetroShale and International Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Petroleum 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 International Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Petroleum has no effect on the direction of PetroShale i.e., PetroShale and International Petroleum go up and down completely randomly.

Pair Corralation between PetroShale and International Petroleum

Assuming the 90 days horizon PetroShale is expected to under-perform the International Petroleum. In addition to that, PetroShale is 1.03 times more volatile than International Petroleum. It trades about -0.2 of its total potential returns per unit of risk. International Petroleum is currently generating about -0.16 per unit of volatility. If you would invest  1,453  in International Petroleum on September 2, 2024 and sell it today you would lose (328.00) from holding International Petroleum or give up 22.57% of portfolio value over 90 days.

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

PetroShale  vs.  International Petroleum

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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

International Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with PetroShale and International Petroleum

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

The idea behind PetroShale and International Petroleum 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.

Check out your portfolio center.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.