Correlation Between San Juan and US Energy
Can any of the company-specific risk be diversified away by investing in both San Juan and US 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 San Juan and US Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between San Juan Basin and US Energy Corp, you can compare the effects of market volatilities on San Juan and US 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 San Juan with a short position of US Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of San Juan and US Energy.
Diversification Opportunities for San Juan and US Energy
Poor diversification
The 3 months correlation between San and USEG is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding San Juan Basin and US Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Energy Corp and San Juan 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 San Juan Basin are associated (or correlated) with US Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Energy Corp has no effect on the direction of San Juan i.e., San Juan and US Energy go up and down completely randomly.
Pair Corralation between San Juan and US Energy
Considering the 90-day investment horizon San Juan is expected to generate 4.41 times less return on investment than US Energy. But when comparing it to its historical volatility, San Juan Basin is 1.67 times less risky than US Energy. It trades about 0.05 of its potential returns per unit of risk. US Energy Corp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 107.00 in US Energy Corp on September 1, 2024 and sell it today you would earn a total of 78.00 from holding US Energy Corp or generate 72.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
San Juan Basin vs. US Energy Corp
Performance |
| Timeline |
| San Juan Basin |
| US Energy Corp |
San Juan and US Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with San Juan and US Energy
The main advantage of trading using opposite San Juan and US Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if San Juan position performs unexpectedly, US 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 US Energy will offset losses from the drop in US Energy's long position.| San Juan vs. Sabine Royalty Trust | San Juan vs. Permian Basin Royalty | San Juan vs. Cross Timbers Royalty | San Juan vs. Mesa Royalty Trust |
| US Energy vs. PEDEVCO Corp | US Energy vs. Houston American Energy | US Energy vs. PHX Minerals | US Energy vs. Trio Petroleum Corp |
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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