Correlation Between Artistic Denim and Oil

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

By analyzing existing cross correlation between Artistic Denim Mills and Oil and Gas, you can compare the effects of market volatilities on Artistic Denim and Oil 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 Artistic Denim with a short position of Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Artistic Denim and Oil.

Diversification Opportunities for Artistic Denim and Oil

0.82

Correlation Coefficient

Artistic Denim  Oil

Very poor diversification

The 3 months correlation between Artistic and Oil is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Artistic Denim Mills and Oil and Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil and Gas and Artistic Denim 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 Artistic Denim Mills are associated (or correlated) with Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil and Gas has no effect on the direction of Artistic Denim i.e., Artistic Denim and Oil go up and down completely randomly.

Pair Corralation between Artistic Denim and Oil

Assuming the 90 days trading horizon Artistic Denim Mills is expected to under-perform the Oil. But the stock apears to be less risky and, when comparing its historical volatility, Artistic Denim Mills is 1.24 times less risky than Oil. The stock trades about -0.02 of its potential returns per unit of risk. The Oil and Gas is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  11,639  in Oil and Gas on October 3, 2024 and sell it today you would earn a total of  11,087  from holding Oil and Gas or generate 95.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.92%
Values	Daily Returns

Artistic Denim Mills  vs.  Oil and Gas

Artistic Denim Mills

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Artistic Denim Mills are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Artistic Denim sustained solid returns over the last few months and may actually be approaching a breakup point.

Oil and Gas

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Oil and Gas are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Artistic Denim and Oil

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

The idea behind Artistic Denim Mills and Oil and Gas 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.