Correlation Between Prairie Provident and PetroShale
Can any of the company-specific risk be diversified away by investing in both Prairie Provident and PetroShale 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 Prairie Provident and PetroShale into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prairie Provident Resources and PetroShale, you can compare the effects of market volatilities on Prairie Provident and PetroShale 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 Prairie Provident with a short position of PetroShale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prairie Provident and PetroShale.
Diversification Opportunities for Prairie Provident and PetroShale
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Prairie and PetroShale is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Prairie Provident Resources and PetroShale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroShale and Prairie Provident 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 Prairie Provident Resources are associated (or correlated) with PetroShale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroShale has no effect on the direction of Prairie Provident i.e., Prairie Provident and PetroShale go up and down completely randomly.
Pair Corralation between Prairie Provident and PetroShale
Assuming the 90 days horizon Prairie Provident Resources is expected to generate 9.33 times more return on investment than PetroShale. However, Prairie Provident is 9.33 times more volatile than PetroShale. It trades about 0.01 of its potential returns per unit of risk. PetroShale is currently generating about -0.29 per unit of risk. If you would invest 2.63 in Prairie Provident Resources on August 25, 2024 and sell it today you would lose (0.84) from holding Prairie Provident Resources or give up 31.94% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Prairie Provident Resources vs. PetroShale
Performance |
| Timeline |
| Prairie Provident |
| PetroShale |
Prairie Provident and PetroShale Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prairie Provident and PetroShale
The main advantage of trading using opposite Prairie Provident and PetroShale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prairie Provident position performs unexpectedly, PetroShale 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 PetroShale will offset losses from the drop in PetroShale's long position.| Prairie Provident vs. San Leon Energy | Prairie Provident vs. Enwell Energy plc | Prairie Provident vs. Dno ASA | Prairie Provident vs. Questerre Energy |
| PetroShale vs. Petroleo Brasileiro Petrobras | PetroShale vs. Equinor ASA ADR | PetroShale vs. Eni SpA ADR | PetroShale vs. YPF Sociedad Anonima |
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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