Correlation Between Short Oil and Oil Gas

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

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

Diversification Opportunities for Short Oil and Oil Gas

-1.0

Correlation Coefficient

Short Oil  Oil Gas

Pay attention - limited upside

The 3 months correlation between Short and Oil is -1.0. Overlapping area represents the amount of risk that can be diversified away by holding Short Oil Gas and Oil Gas Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Gas Ultrasector and Short Oil 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 Short Oil Gas are associated (or correlated) with Oil Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Gas Ultrasector has no effect on the direction of Short Oil i.e., Short Oil and Oil Gas go up and down completely randomly.

Pair Corralation between Short Oil and Oil Gas

Assuming the 90 days horizon Short Oil Gas is expected to under-perform the Oil Gas. But the mutual fund apears to be less risky and, when comparing its historical volatility, Short Oil Gas is 1.51 times less risky than Oil Gas. The mutual fund trades about -0.3 of its potential returns per unit of risk. The Oil Gas Ultrasector is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  3,567  in Oil Gas Ultrasector on August 31, 2024 and sell it today you would earn a total of  421.00  from holding Oil Gas Ultrasector or generate 11.8% return on investment over 90 days.

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

Short Oil Gas  vs.  Oil Gas Ultrasector

Short Oil Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Short Oil Gas has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Short Oil is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Oil Gas Ultrasector

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Oil Gas Ultrasector are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Oil Gas may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Short Oil and Oil Gas

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

The idea behind Short Oil Gas and Oil Gas Ultrasector 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.