Correlation Between US Energy and North European
Can any of the company-specific risk be diversified away by investing in both US Energy and North European 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 US Energy and North European into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between US Energy Corp and North European Oil, you can compare the effects of market volatilities on US Energy and North European 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 US Energy with a short position of North European. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Energy and North European.
Diversification Opportunities for US Energy and North European
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between USEG and North is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding US Energy Corp and North European Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North European Oil and US 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 US Energy Corp are associated (or correlated) with North European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North European Oil has no effect on the direction of US Energy i.e., US Energy and North European go up and down completely randomly.
Pair Corralation between US Energy and North European
Given the investment horizon of 90 days US Energy Corp is expected to generate 5.65 times more return on investment than North European. However, US Energy is 5.65 times more volatile than North European Oil. It trades about 0.15 of its potential returns per unit of risk. North European Oil is currently generating about 0.02 per unit of risk. If you would invest 161.00 in US Energy Corp on November 3, 2024 and sell it today you would earn a total of 58.00 from holding US Energy Corp or generate 36.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
US Energy Corp vs. North European Oil
Performance |
| Timeline |
| US Energy Corp |
| North European Oil |
US Energy and North European Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with US Energy and North European
The main advantage of trading using opposite US Energy and North European positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Energy position performs unexpectedly, North European 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 North European will offset losses from the drop in North European's long position.| US Energy vs. PEDEVCO Corp | US Energy vs. Houston American Energy | US Energy vs. PHX Minerals | US Energy vs. Trio Petroleum Corp |
| North European vs. Cross Timbers Royalty | North European vs. VOC Energy Trust | North European vs. Sabine Royalty Trust | North European vs. Permianville Royalty 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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