Correlation Between Oil Gas and Extended Market
Can any of the company-specific risk be diversified away by investing in both Oil Gas and Extended Market 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 Oil Gas and Extended Market into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Oil Gas Ultrasector and Extended Market Index, you can compare the effects of market volatilities on Oil Gas and Extended Market 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 Oil Gas with a short position of Extended Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oil Gas and Extended Market.
Diversification Opportunities for Oil Gas and Extended Market
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Oil and Extended is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Oil Gas Ultrasector and Extended Market Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extended Market Index and Oil Gas 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 Oil Gas Ultrasector are associated (or correlated) with Extended Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extended Market Index has no effect on the direction of Oil Gas i.e., Oil Gas and Extended Market go up and down completely randomly.
Pair Corralation between Oil Gas and Extended Market
Assuming the 90 days horizon Oil Gas is expected to generate 4.36 times less return on investment than Extended Market. In addition to that, Oil Gas is 1.55 times more volatile than Extended Market Index. It trades about 0.01 of its total potential returns per unit of risk. Extended Market Index is currently generating about 0.08 per unit of volatility. If you would invest 1,899 in Extended Market Index on September 12, 2024 and sell it today you would earn a total of 567.00 from holding Extended Market Index or generate 29.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Oil Gas Ultrasector vs. Extended Market Index
Performance |
| Timeline |
| Oil Gas Ultrasector |
| Extended Market Index |
Oil Gas and Extended Market Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Oil Gas and Extended Market
The main advantage of trading using opposite Oil Gas and Extended Market positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oil Gas position performs unexpectedly, Extended Market 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 Extended Market will offset losses from the drop in Extended Market's long position.| Oil Gas vs. Oil Gas Ultrasector | Oil Gas vs. Ultramid Cap Profund Ultramid Cap | Oil Gas vs. Precious Metals Ultrasector | Oil Gas vs. Real Estate Ultrasector |
| Extended Market vs. Vanguard Mid Cap Index | Extended Market vs. Vanguard Mid Cap Index | Extended Market vs. Vanguard Mid Cap Index | Extended Market vs. Vanguard Mid Cap Index |
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 Stocks Directory module to find actively traded stocks across global markets.
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