Correlation Between US Energy and San Juan
Can any of the company-specific risk be diversified away by investing in both US Energy and San Juan 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 San Juan 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 San Juan Basin, you can compare the effects of market volatilities on US Energy and San Juan 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 San Juan. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Energy and San Juan.
Diversification Opportunities for US Energy and San Juan
Poor diversification
The 3 months correlation between USEG and San is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding US Energy Corp and San Juan Basin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on San Juan Basin 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 San Juan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of San Juan Basin has no effect on the direction of US Energy i.e., US Energy and San Juan go up and down completely randomly.
Pair Corralation between US Energy and San Juan
Given the investment horizon of 90 days US Energy Corp is expected to generate 1.67 times more return on investment than San Juan. However, US Energy is 1.67 times more volatile than San Juan Basin. It trades about 0.12 of its potential returns per unit of risk. San Juan Basin is currently generating about 0.05 per unit of risk. 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 |
US Energy Corp vs. San Juan Basin
Performance |
| Timeline |
| US Energy Corp |
| San Juan Basin |
US Energy and San Juan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with US Energy and San Juan
The main advantage of trading using opposite US Energy and San Juan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Energy position performs unexpectedly, San Juan 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 San Juan will offset losses from the drop in San Juan'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 |
| San Juan vs. Sabine Royalty Trust | San Juan vs. Permian Basin Royalty | San Juan vs. Cross Timbers Royalty | San Juan vs. Mesa 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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