Correlation Between US Energy and North European

Can any of the company-specific risk be diversified away by investing in both US Energy and North European 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 North European 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 North European Oil, you can compare the effects of market volatilities on US Energy and North European 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 North European. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Energy and North European.

Diversification Opportunities for US Energy and North European

-0.66

Correlation Coefficient

US Energy  North European

Excellent diversification

The 3 months correlation between USEG and North is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding US Energy Corp and North European Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North European Oil 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 North European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North European Oil has no effect on the direction of US Energy i.e., US Energy and North European go up and down completely randomly.

Pair Corralation between US Energy and North European

Given the investment horizon of 90 days US Energy Corp is expected to generate 1.8 times more return on investment than North European. However, US Energy is 1.8 times more volatile than North European Oil. It trades about 0.16 of its potential returns per unit of risk. North European Oil is currently generating about -0.11 per unit of risk. If you would invest  97.00  in US Energy Corp on September 23, 2024 and sell it today you would earn a total of  58.00  from holding US Energy Corp or generate 59.79% return on investment over 90 days.

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

US Energy Corp  vs.  North European Oil

US Energy Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US Energy Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, US Energy reported solid returns over the last few months and may actually be approaching a breakup point.

North European Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days North European Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with US Energy and North European

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

The idea behind US Energy Corp and North European Oil 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.