Correlation Between Sky Petroleum and FEC Resources

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

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

Diversification Opportunities for Sky Petroleum and FEC Resources

-0.04

Correlation Coefficient

Sky Petroleum  FEC Resources

Good diversification

The 3 months correlation between Sky and FEC is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Sky Petroleum and FEC Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FEC Resources and Sky Petroleum 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 Sky Petroleum are associated (or correlated) with FEC Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FEC Resources has no effect on the direction of Sky Petroleum i.e., Sky Petroleum and FEC Resources go up and down completely randomly.

Pair Corralation between Sky Petroleum and FEC Resources

Given the investment horizon of 90 days Sky Petroleum is expected to generate 2.65 times more return on investment than FEC Resources. However, Sky Petroleum is 2.65 times more volatile than FEC Resources. It trades about 0.11 of its potential returns per unit of risk. FEC Resources is currently generating about 0.08 per unit of risk. If you would invest  5.00  in Sky Petroleum on September 17, 2024 and sell it today you would earn a total of  2.00  from holding Sky Petroleum or generate 40.0% return on investment over 90 days.

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

Sky Petroleum  vs.  FEC Resources

Sky Petroleum

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sky Petroleum are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Sky Petroleum demonstrated solid returns over the last few months and may actually be approaching a breakup point.

FEC Resources

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FEC Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, FEC Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sky Petroleum and FEC Resources

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

The idea behind Sky Petroleum and FEC Resources 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.