Correlation Between Offshore Oil and Shandong Homey

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

By analyzing existing cross correlation between Offshore Oil Engineering and Shandong Homey Aquatic, you can compare the effects of market volatilities on Offshore Oil and Shandong Homey 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 Offshore Oil with a short position of Shandong Homey. Check out your portfolio center. Please also check ongoing floating volatility patterns of Offshore Oil and Shandong Homey.

Diversification Opportunities for Offshore Oil and Shandong Homey

0.47

Correlation Coefficient

Offshore Oil  Shandong Homey

Very weak diversification

The 3 months correlation between Offshore and Shandong is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Offshore Oil Engineering and Shandong Homey Aquatic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Homey Aquatic and Offshore Oil 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 Offshore Oil Engineering are associated (or correlated) with Shandong Homey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Homey Aquatic has no effect on the direction of Offshore Oil i.e., Offshore Oil and Shandong Homey go up and down completely randomly.

Pair Corralation between Offshore Oil and Shandong Homey

Assuming the 90 days trading horizon Offshore Oil Engineering is expected to generate 0.38 times more return on investment than Shandong Homey. However, Offshore Oil Engineering is 2.63 times less risky than Shandong Homey. It trades about -0.07 of its potential returns per unit of risk. Shandong Homey Aquatic is currently generating about -0.03 per unit of risk. If you would invest  528.00  in Offshore Oil Engineering on November 28, 2024 and sell it today you would lose (25.00) from holding Offshore Oil Engineering or give up 4.73% of portfolio value over 90 days.

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

Offshore Oil Engineering  vs.  Shandong Homey Aquatic

Offshore Oil Engineering

Risk-Adjusted Performance

Very Weak

Over the last 90 days Offshore Oil Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Offshore Oil is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shandong Homey Aquatic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shandong Homey Aquatic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Offshore Oil and Shandong Homey

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

The idea behind Offshore Oil Engineering and Shandong Homey Aquatic 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.