Correlation Between ROK Resources and Reserve Petroleum

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

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

Diversification Opportunities for ROK Resources and Reserve Petroleum

0.42

Correlation Coefficient

ROK Resources  Reserve Petroleum

Very weak diversification

The 3 months correlation between ROK and Reserve is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding ROK Resources and The Reserve Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reserve Petroleum and ROK Resources 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 ROK Resources are associated (or correlated) with Reserve Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reserve Petroleum has no effect on the direction of ROK Resources i.e., ROK Resources and Reserve Petroleum go up and down completely randomly.

Pair Corralation between ROK Resources and Reserve Petroleum

Assuming the 90 days horizon ROK Resources is expected to under-perform the Reserve Petroleum. In addition to that, ROK Resources is 1.63 times more volatile than The Reserve Petroleum. It trades about -0.03 of its total potential returns per unit of risk. The Reserve Petroleum is currently generating about 0.03 per unit of volatility. If you would invest  16,000  in The Reserve Petroleum on September 4, 2024 and sell it today you would earn a total of  500.00  from holding The Reserve Petroleum or generate 3.13% return on investment over 90 days.

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

ROK Resources  vs.  The Reserve Petroleum

ROK Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ROK Resources 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.

Reserve Petroleum

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Reserve Petroleum are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Reserve Petroleum is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with ROK Resources and Reserve Petroleum

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

The idea behind ROK Resources and The Reserve 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.