Correlation Between PetroShale and San Juan

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

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

Diversification Opportunities for PetroShale and San Juan

-0.41

Correlation Coefficient

PetroShale  San Juan

Very good diversification

The 3 months correlation between PetroShale and San is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding PetroShale and San Juan Basin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on San Juan Basin 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 San Juan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of San Juan Basin has no effect on the direction of PetroShale i.e., PetroShale and San Juan go up and down completely randomly.

Pair Corralation between PetroShale and San Juan

Assuming the 90 days horizon PetroShale is expected to generate 1.15 times more return on investment than San Juan. However, PetroShale is 1.15 times more volatile than San Juan Basin. It trades about -0.01 of its potential returns per unit of risk. San Juan Basin is currently generating about -0.04 per unit of risk. If you would invest  39.00  in PetroShale on September 26, 2024 and sell it today you would lose (11.00) from holding PetroShale or give up 28.21% of portfolio value over 90 days.

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

PetroShale  vs.  San Juan Basin

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.

San Juan Basin

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in San Juan Basin are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward-looking indicators, San Juan is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with PetroShale and San Juan

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

The idea behind PetroShale and San Juan Basin 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.