Correlation Between ADX Energy and EnQuest PLC

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

By analyzing existing cross correlation between ADX Energy and EnQuest PLC, you can compare the effects of market volatilities on ADX Energy and EnQuest PLC 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 ADX Energy with a short position of EnQuest PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of ADX Energy and EnQuest PLC.

Diversification Opportunities for ADX Energy and EnQuest PLC

0.34

Correlation Coefficient

ADX Energy  EnQuest PLC

Weak diversification

The 3 months correlation between ADX and EnQuest is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding ADX Energy and EnQuest PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EnQuest PLC and ADX 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 ADX Energy are associated (or correlated) with EnQuest PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EnQuest PLC has no effect on the direction of ADX Energy i.e., ADX Energy and EnQuest PLC go up and down completely randomly.

Pair Corralation between ADX Energy and EnQuest PLC

Assuming the 90 days horizon ADX Energy is expected to generate 4.12 times more return on investment than EnQuest PLC. However, ADX Energy is 4.12 times more volatile than EnQuest PLC. It trades about 0.12 of its potential returns per unit of risk. EnQuest PLC is currently generating about 0.07 per unit of risk. If you would invest  1.20  in ADX Energy on December 28, 2024 and sell it today you would earn a total of  0.70  from holding ADX Energy or generate 58.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.77%
Values	Daily Returns

ADX Energy  vs.  EnQuest PLC

ADX Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ADX Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, ADX Energy reported solid returns over the last few months and may actually be approaching a breakup point.

EnQuest PLC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EnQuest PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, EnQuest PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ADX Energy and EnQuest PLC

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

The idea behind ADX Energy and EnQuest PLC 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.

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.