Correlation Between PetroShale and Sound Energy
Can any of the company-specific risk be diversified away by investing in both PetroShale and Sound 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 PetroShale and Sound Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PetroShale and Sound Energy plc, you can compare the effects of market volatilities on PetroShale and Sound 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 PetroShale with a short position of Sound Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of PetroShale and Sound Energy.
Diversification Opportunities for PetroShale and Sound Energy
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between PetroShale and Sound is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding PetroShale and Sound Energy plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sound Energy plc and PetroShale 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 PetroShale are associated (or correlated) with Sound Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sound Energy plc has no effect on the direction of PetroShale i.e., PetroShale and Sound Energy go up and down completely randomly.
Pair Corralation between PetroShale and Sound Energy
Assuming the 90 days horizon PetroShale is expected to under-perform the Sound Energy. But the otc stock apears to be less risky and, when comparing its historical volatility, PetroShale is 10.64 times less risky than Sound Energy. The otc stock trades about -0.15 of its potential returns per unit of risk. The Sound Energy plc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1.48 in Sound Energy plc on September 3, 2024 and sell it today you would lose (1.07) from holding Sound Energy plc or give up 72.3% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.21% |
| Values | Daily Returns |
PetroShale vs. Sound Energy plc
Performance |
| Timeline |
| PetroShale |
| Sound Energy plc |
PetroShale and Sound Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PetroShale and Sound Energy
The main advantage of trading using opposite PetroShale and Sound Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PetroShale position performs unexpectedly, Sound 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 Sound Energy will offset losses from the drop in Sound Energy's long position.| PetroShale vs. Dno ASA | PetroShale vs. Horizon Oil Limited | PetroShale vs. Enwell Energy plc | PetroShale vs. Tullow Oil plc |
| Sound Energy vs. CNX Resources Corp | Sound Energy vs. MV Oil Trust | Sound Energy vs. San Juan Basin | Sound Energy vs. VOC Energy Trust |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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