Correlation Between Energy Basic and Oil Gas
Can any of the company-specific risk be diversified away by investing in both Energy Basic and Oil Gas 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 Energy Basic and Oil Gas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy Basic Materials and Oil Gas Ultrasector, you can compare the effects of market volatilities on Energy Basic and Oil Gas 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 Energy Basic with a short position of Oil Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Basic and Oil Gas.
Diversification Opportunities for Energy Basic and Oil Gas
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Energy and Oil is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Energy Basic Materials and Oil Gas Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Gas Ultrasector and Energy Basic 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 Energy Basic Materials are associated (or correlated) with Oil Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Gas Ultrasector has no effect on the direction of Energy Basic i.e., Energy Basic and Oil Gas go up and down completely randomly.
Pair Corralation between Energy Basic and Oil Gas
Assuming the 90 days horizon Energy Basic is expected to generate 14.23 times less return on investment than Oil Gas. But when comparing it to its historical volatility, Energy Basic Materials is 2.1 times less risky than Oil Gas. It trades about 0.04 of its potential returns per unit of risk. Oil Gas Ultrasector is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 3,685 in Oil Gas Ultrasector on August 24, 2024 and sell it today you would earn a total of 328.00 from holding Oil Gas Ultrasector or generate 8.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy Basic Materials vs. Oil Gas Ultrasector
Performance |
| Timeline |
| Energy Basic Materials |
| Oil Gas Ultrasector |
Energy Basic and Oil Gas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Basic and Oil Gas
The main advantage of trading using opposite Energy Basic and Oil Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Basic position performs unexpectedly, Oil Gas 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 Gas will offset losses from the drop in Oil Gas' long position.| Energy Basic vs. Vanguard Materials Index | Energy Basic vs. T Rowe Price | Energy Basic vs. Gmo Trust | Energy Basic vs. Gmo Resources |
| Oil Gas vs. Nasdaq 100 2x Strategy | Oil Gas vs. Nasdaq 100 2x Strategy | Oil Gas vs. Nasdaq 100 2x Strategy | Oil Gas vs. Ultra Nasdaq 100 Profunds |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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