Correlation Between Oriental Petroleum and Basic Energy
Can any of the company-specific risk be diversified away by investing in both Oriental Petroleum and Basic Energy 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 Oriental Petroleum and Basic Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Oriental Petroleum and and Basic Energy Corp, you can compare the effects of market volatilities on Oriental Petroleum and Basic Energy 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 Oriental Petroleum with a short position of Basic Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oriental Petroleum and Basic Energy.
Diversification Opportunities for Oriental Petroleum and Basic Energy
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between Oriental and Basic is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Oriental Petroleum and and Basic Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Energy Corp and Oriental Petroleum 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 Oriental Petroleum and are associated (or correlated) with Basic Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Energy Corp has no effect on the direction of Oriental Petroleum i.e., Oriental Petroleum and Basic Energy go up and down completely randomly.
Pair Corralation between Oriental Petroleum and Basic Energy
Assuming the 90 days trading horizon Oriental Petroleum and is expected to under-perform the Basic Energy. But the stock apears to be less risky and, when comparing its historical volatility, Oriental Petroleum and is 1.39 times less risky than Basic Energy. The stock trades about -0.6 of its potential returns per unit of risk. The Basic Energy Corp is currently generating about -0.07 of returns per unit of risk over similar time horizon. 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 |
Oriental Petroleum and vs. Basic Energy Corp
Performance |
| Timeline |
| Oriental Petroleum and |
| Basic Energy Corp |
Oriental Petroleum and Basic Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Oriental Petroleum and Basic Energy
The main advantage of trading using opposite Oriental Petroleum and Basic Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oriental Petroleum position performs unexpectedly, Basic Energy 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 Basic Energy will offset losses from the drop in Basic Energy's long position.The idea behind Oriental Petroleum and and Basic Energy Corp 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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