Correlation Between PetroShale and Santos

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

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

Diversification Opportunities for PetroShale and Santos

0.62

Correlation Coefficient

PetroShale  Santos

Poor diversification

The 3 months correlation between PetroShale and Santos is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding PetroShale and Santos in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Santos 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 Santos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Santos has no effect on the direction of PetroShale i.e., PetroShale and Santos go up and down completely randomly.

Pair Corralation between PetroShale and Santos

Assuming the 90 days horizon PetroShale is expected to generate 0.39 times more return on investment than Santos. However, PetroShale is 2.58 times less risky than Santos. It trades about 0.22 of its potential returns per unit of risk. Santos is currently generating about -0.02 per unit of risk. If you would invest  29.00  in PetroShale on September 17, 2024 and sell it today you would earn a total of  3.00  from holding PetroShale or generate 10.34% return on investment over 90 days.

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

PetroShale  vs.  Santos

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 weak 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.

Santos

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Santos has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with PetroShale and Santos

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

The idea behind PetroShale and Santos 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.