Correlation Between Energy Resources and London City
Can any of the company-specific risk be diversified away by investing in both Energy Resources and London City 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 Energy Resources and London City into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy Resources and London City Equities, you can compare the effects of market volatilities on Energy Resources and London City 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 Energy Resources with a short position of London City. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Resources and London City.
Diversification Opportunities for Energy Resources and London City
-0.2 | Correlation Coefficient |
Good diversification
The 3 months correlation between Energy and London is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Energy Resources and London City Equities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London City Equities and Energy Resources 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 Energy Resources are associated (or correlated) with London City. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London City Equities has no effect on the direction of Energy Resources i.e., Energy Resources and London City go up and down completely randomly.
Pair Corralation between Energy Resources and London City
Assuming the 90 days trading horizon Energy Resources is expected to generate 11.5 times more return on investment than London City. However, Energy Resources is 11.5 times more volatile than London City Equities. It trades about 0.02 of its potential returns per unit of risk. London City Equities is currently generating about 0.15 per unit of risk. If you would invest 6.30 in Energy Resources on October 18, 2024 and sell it today you would lose (6.00) from holding Energy Resources or give up 95.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy Resources vs. London City Equities
Performance |
| Timeline |
| Energy Resources |
| London City Equities |
Energy Resources and London City Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Resources and London City
The main advantage of trading using opposite Energy Resources and London City positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Resources position performs unexpectedly, London City 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 London City will offset losses from the drop in London City's long position.| Energy Resources vs. Technology One | Energy Resources vs. Mount Gibson Iron | Energy Resources vs. Red Hill Iron | Energy Resources vs. Dalaroo Metals |
| London City vs. Energy Resources | London City vs. 88 Energy | London City vs. A1 Investments Resources | London City vs. Coronado Global Resources |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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