Correlation Between Inverse Government and Oil Equipment
Can any of the company-specific risk be diversified away by investing in both Inverse Government and Oil Equipment 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 Inverse Government and Oil Equipment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Inverse Government Long and Oil Equipment Services, you can compare the effects of market volatilities on Inverse Government and Oil Equipment 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 Inverse Government with a short position of Oil Equipment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Government and Oil Equipment.
Diversification Opportunities for Inverse Government and Oil Equipment
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between Inverse and Oil is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Government Long and Oil Equipment Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Equipment Services and Inverse Government 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 Inverse Government Long are associated (or correlated) with Oil Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Equipment Services has no effect on the direction of Inverse Government i.e., Inverse Government and Oil Equipment go up and down completely randomly.
Pair Corralation between Inverse Government and Oil Equipment
Assuming the 90 days horizon Inverse Government is expected to generate 15.58 times less return on investment than Oil Equipment. But when comparing it to its historical volatility, Inverse Government Long is 3.09 times less risky than Oil Equipment. It trades about 0.09 of its potential returns per unit of risk. Oil Equipment Services is currently generating about 0.47 of returns per unit of risk over similar time horizon. If you would invest 8,242 in Oil Equipment Services on October 25, 2024 and sell it today you would earn a total of 1,496 from holding Oil Equipment Services or generate 18.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Inverse Government Long vs. Oil Equipment Services
Performance |
| Timeline |
| Inverse Government Long |
| Oil Equipment Services |
Inverse Government and Oil Equipment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Inverse Government and Oil Equipment
The main advantage of trading using opposite Inverse Government and Oil Equipment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse Government position performs unexpectedly, Oil Equipment 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 Oil Equipment will offset losses from the drop in Oil Equipment's long position.| Inverse Government vs. Tax Managed Large Cap | Inverse Government vs. T Rowe Price | Inverse Government vs. Alternative Asset Allocation | Inverse Government vs. Neiman Large Cap |
| Oil Equipment vs. Columbia Convertible Securities | Oil Equipment vs. Allianzgi Convertible Income | Oil Equipment vs. Gabelli Convertible And | Oil Equipment vs. Absolute Convertible Arbitrage |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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