Correlation Between Sound Energy and Energy Revenue
Can any of the company-specific risk be diversified away by investing in both Sound Energy and Energy Revenue 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 Sound Energy and Energy Revenue into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sound Energy plc and Energy Revenue Amer, you can compare the effects of market volatilities on Sound Energy and Energy Revenue 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 Sound Energy with a short position of Energy Revenue. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sound Energy and Energy Revenue.
Diversification Opportunities for Sound Energy and Energy Revenue
-0.58 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Sound and Energy is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Sound Energy plc and Energy Revenue Amer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Revenue Amer and Sound Energy 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 Sound Energy plc are associated (or correlated) with Energy Revenue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Revenue Amer has no effect on the direction of Sound Energy i.e., Sound Energy and Energy Revenue go up and down completely randomly.
Pair Corralation between Sound Energy and Energy Revenue
Assuming the 90 days horizon Sound Energy is expected to generate 4.31 times less return on investment than Energy Revenue. But when comparing it to its historical volatility, Sound Energy plc is 1.63 times less risky than Energy Revenue. It trades about 0.05 of its potential returns per unit of risk. Energy Revenue Amer is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 0.70 in Energy Revenue Amer on September 1, 2024 and sell it today you would earn a total of 2.81 from holding Energy Revenue Amer or generate 401.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 96.17% |
| Values | Daily Returns |
Sound Energy plc vs. Energy Revenue Amer
Performance |
| Timeline |
| Sound Energy plc |
| Energy Revenue Amer |
Sound Energy and Energy Revenue Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sound Energy and Energy Revenue
The main advantage of trading using opposite Sound Energy and Energy Revenue positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sound Energy position performs unexpectedly, Energy Revenue 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 Energy Revenue will offset losses from the drop in Energy Revenue's long position.| Sound Energy vs. Permian Resources | Sound Energy vs. Devon Energy | Sound Energy vs. EOG Resources | Sound Energy vs. Coterra Energy |
| Energy Revenue vs. Permian Resources | Energy Revenue vs. Devon Energy | Energy Revenue vs. EOG Resources | Energy Revenue vs. Coterra Energy |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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