Correlation Between Valeura Energy and AER Energy

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

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

Diversification Opportunities for Valeura Energy and AER Energy

0.75

Correlation Coefficient

Valeura Energy  AER Energy

Poor diversification

The 3 months correlation between Valeura and AER is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Valeura Energy and AER Energy Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AER Energy Resources and Valeura 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 Valeura Energy are associated (or correlated) with AER Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AER Energy Resources has no effect on the direction of Valeura Energy i.e., Valeura Energy and AER Energy go up and down completely randomly.

Pair Corralation between Valeura Energy and AER Energy

Assuming the 90 days horizon Valeura Energy is expected to generate 23.57 times less return on investment than AER Energy. But when comparing it to its historical volatility, Valeura Energy is 36.29 times less risky than AER Energy. It trades about 0.24 of its potential returns per unit of risk. AER Energy Resources is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  0.00  in AER Energy Resources on September 12, 2024 and sell it today you would earn a total of  0.01  from holding AER Energy Resources or generate 9.223372036854776E16% return on investment over 90 days.

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

Valeura Energy  vs.  AER Energy Resources

Valeura Energy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Valeura Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Valeura Energy reported solid returns over the last few months and may actually be approaching a breakup point.

AER Energy Resources

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AER Energy Resources are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, AER Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Valeura Energy and AER Energy

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

The idea behind Valeura Energy and AER Energy 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.