Correlation Between US Energy and Evolution Petroleum

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

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

Diversification Opportunities for US Energy and Evolution Petroleum

0.53

Correlation Coefficient

US Energy  Evolution Petroleum

Very weak diversification

The 3 months correlation between USEG and Evolution is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding US Energy Corp and Evolution Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution Petroleum and US Energy 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 US Energy Corp are associated (or correlated) with Evolution Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution Petroleum has no effect on the direction of US Energy i.e., US Energy and Evolution Petroleum go up and down completely randomly.

Pair Corralation between US Energy and Evolution Petroleum

Given the investment horizon of 90 days US Energy Corp is expected to generate 2.15 times more return on investment than Evolution Petroleum. However, US Energy is 2.15 times more volatile than Evolution Petroleum. It trades about -0.13 of its potential returns per unit of risk. Evolution Petroleum is currently generating about -0.45 per unit of risk. If you would invest  175.00  in US Energy Corp on September 24, 2024 and sell it today you would lose (19.00) from holding US Energy Corp or give up 10.86% of portfolio value over 90 days.

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

US Energy Corp  vs.  Evolution Petroleum

US Energy Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US Energy Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, US Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Evolution Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evolution Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Evolution Petroleum is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with US Energy and Evolution Petroleum

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

The idea behind US Energy Corp and Evolution 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.