Correlation Between WESTERN NEW and WESTERN ENERGY

Can any of the company-specific risk be diversified away by investing in both WESTERN NEW and WESTERN 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 WESTERN NEW and WESTERN ENERGY into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between WESTERN NEW ENGL and WESTERN ENERGY SRV, you can compare the effects of market volatilities on WESTERN NEW and WESTERN 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 WESTERN NEW with a short position of WESTERN ENERGY. Check out your portfolio center. Please also check ongoing floating volatility patterns of WESTERN NEW and WESTERN ENERGY.

Diversification Opportunities for WESTERN NEW and WESTERN ENERGY

-0.25

Correlation Coefficient

WESTERN NEW  WESTERN ENERGY

Very good diversification

The 3 months correlation between WESTERN and WESTERN is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding WESTERN NEW ENGL and WESTERN ENERGY SRV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESTERN ENERGY SRV and WESTERN NEW 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 WESTERN NEW ENGL are associated (or correlated) with WESTERN ENERGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WESTERN ENERGY SRV has no effect on the direction of WESTERN NEW i.e., WESTERN NEW and WESTERN ENERGY go up and down completely randomly.

Pair Corralation between WESTERN NEW and WESTERN ENERGY

Assuming the 90 days horizon WESTERN NEW ENGL is expected to generate 0.3 times more return on investment than WESTERN ENERGY. However, WESTERN NEW ENGL is 3.39 times less risky than WESTERN ENERGY. It trades about 0.15 of its potential returns per unit of risk. WESTERN ENERGY SRV is currently generating about 0.01 per unit of risk. If you would invest  773.00  in WESTERN NEW ENGL on October 23, 2024 and sell it today you would earn a total of  97.00  from holding WESTERN NEW ENGL or generate 12.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

WESTERN NEW ENGL  vs.  WESTERN ENERGY SRV

WESTERN NEW ENGL

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WESTERN NEW ENGL are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WESTERN NEW reported solid returns over the last few months and may actually be approaching a breakup point.

WESTERN ENERGY SRV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WESTERN ENERGY SRV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, WESTERN ENERGY is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with WESTERN NEW and WESTERN ENERGY

The main advantage of trading using opposite WESTERN NEW and WESTERN ENERGY positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WESTERN NEW position performs unexpectedly, WESTERN 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 WESTERN ENERGY will offset losses from the drop in WESTERN ENERGY's long position.

The idea behind WESTERN NEW ENGL and WESTERN ENERGY SRV pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.