Correlation Between Oil and Hi Tech
Can any of the company-specific risk be diversified away by investing in both Oil and Hi Tech 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 and Hi Tech into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Oil and Gas and Hi Tech Lubricants, you can compare the effects of market volatilities on Oil and Hi Tech 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 with a short position of Hi Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oil and Hi Tech.
Diversification Opportunities for Oil and Hi Tech
Very weak diversification
The 3 months correlation between Oil and HTL is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Oil and Gas and Hi Tech Lubricants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hi Tech Lubricants and Oil 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 and Gas are associated (or correlated) with Hi Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hi Tech Lubricants has no effect on the direction of Oil i.e., Oil and Hi Tech go up and down completely randomly.
Pair Corralation between Oil and Hi Tech
Assuming the 90 days trading horizon Oil is expected to generate 1.56 times less return on investment than Hi Tech. But when comparing it to its historical volatility, Oil and Gas is 1.34 times less risky than Hi Tech. It trades about 0.22 of its potential returns per unit of risk. Hi Tech Lubricants is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 3,848 in Hi Tech Lubricants on August 31, 2024 and sell it today you would earn a total of 812.00 from holding Hi Tech Lubricants or generate 21.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Oil and Gas vs. Hi Tech Lubricants
Performance |
| Timeline |
| Oil and Gas |
| Hi Tech Lubricants |
Oil and Hi Tech Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Oil and Hi Tech
The main advantage of trading using opposite Oil and Hi Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oil position performs unexpectedly, Hi Tech 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 Hi Tech will offset losses from the drop in Hi Tech's long position.The idea behind Oil and Gas and Hi Tech Lubricants 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.| Hi Tech vs. Data Agro | Hi Tech vs. Bank of Punjab | Hi Tech vs. 786 Investment Limited | Hi Tech vs. Askari Bank |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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