Correlation Between Basic Energy and Oriental Petroleum
Can any of the company-specific risk be diversified away by investing in both Basic Energy and Oriental 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 Basic Energy and Oriental Petroleum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Energy Corp and Oriental Petroleum and, you can compare the effects of market volatilities on Basic Energy and Oriental 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 Basic Energy with a short position of Oriental Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Energy and Oriental Petroleum.
Diversification Opportunities for Basic Energy and Oriental Petroleum
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between Basic and Oriental is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Basic Energy Corp and Oriental Petroleum and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oriental Petroleum and and Basic 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 Basic Energy Corp are associated (or correlated) with Oriental Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oriental Petroleum and has no effect on the direction of Basic Energy i.e., Basic Energy and Oriental Petroleum go up and down completely randomly.
Pair Corralation between Basic Energy and Oriental Petroleum
Assuming the 90 days trading horizon Basic Energy Corp is expected to generate 1.39 times more return on investment than Oriental Petroleum. However, Basic Energy is 1.39 times more volatile than Oriental Petroleum and. It trades about -0.07 of its potential returns per unit of risk. Oriental Petroleum and is currently generating about -0.6 per unit of risk. If you would invest 14.00 in Basic Energy Corp on September 1, 2024 and sell it today you would lose (1.00) from holding Basic Energy Corp or give up 7.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 63.64% |
| Values | Daily Returns |
Basic Energy Corp vs. Oriental Petroleum and
Performance |
| Timeline |
| Basic Energy Corp |
| Oriental Petroleum and |
Basic Energy and Oriental Petroleum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Basic Energy and Oriental Petroleum
The main advantage of trading using opposite Basic Energy and Oriental Petroleum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Energy position performs unexpectedly, Oriental 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 Oriental Petroleum will offset losses from the drop in Oriental Petroleum's long position.The idea behind Basic Energy Corp and Oriental Petroleum and 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.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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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