Correlation Between Arrow Exploration and TAG Oil
Can any of the company-specific risk be diversified away by investing in both Arrow Exploration and TAG Oil 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 Arrow Exploration and TAG Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Arrow Exploration Corp and TAG Oil, you can compare the effects of market volatilities on Arrow Exploration and TAG Oil 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 Arrow Exploration with a short position of TAG Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arrow Exploration and TAG Oil.
Diversification Opportunities for Arrow Exploration and TAG Oil
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Arrow and TAG is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Exploration Corp and TAG Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TAG Oil and Arrow Exploration 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 Arrow Exploration Corp are associated (or correlated) with TAG Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TAG Oil has no effect on the direction of Arrow Exploration i.e., Arrow Exploration and TAG Oil go up and down completely randomly.
Pair Corralation between Arrow Exploration and TAG Oil
Assuming the 90 days horizon Arrow Exploration Corp is expected to under-perform the TAG Oil. But the stock apears to be less risky and, when comparing its historical volatility, Arrow Exploration Corp is 1.52 times less risky than TAG Oil. The stock trades about -0.12 of its potential returns per unit of risk. The TAG Oil is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 14.00 in TAG Oil on September 1, 2024 and sell it today you would earn a total of 3.00 from holding TAG Oil or generate 21.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Arrow Exploration Corp vs. TAG Oil
Performance |
| Timeline |
| Arrow Exploration Corp |
| TAG Oil |
Arrow Exploration and TAG Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Arrow Exploration and TAG Oil
The main advantage of trading using opposite Arrow Exploration and TAG Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arrow Exploration position performs unexpectedly, TAG Oil 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 TAG Oil will offset losses from the drop in TAG Oil's long position.The idea behind Arrow Exploration Corp and TAG 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.| TAG Oil vs. Southern Energy Corp | TAG Oil vs. ShaMaran Petroleum Corp | TAG Oil vs. Tenaz Energy Corp | TAG Oil vs. Hemisphere Energy |
Check out your portfolio center.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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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