Correlation Between AER Energy and Daybreak Oil

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

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

Diversification Opportunities for AER Energy and Daybreak Oil

-0.07

Correlation Coefficient

AER Energy  Daybreak Oil

Good diversification

The 3 months correlation between AER and Daybreak is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding AER Energy Resources and Daybreak Oil and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daybreak Oil and AER 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 AER Energy Resources are associated (or correlated) with Daybreak Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daybreak Oil has no effect on the direction of AER Energy i.e., AER Energy and Daybreak Oil go up and down completely randomly.

Pair Corralation between AER Energy and Daybreak Oil

If you would invest  0.01  in Daybreak Oil and on December 25, 2024 and sell it today you would earn a total of  0.01  from holding Daybreak Oil and or generate 100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

AER Energy Resources  vs.  Daybreak Oil and

AER Energy Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days AER Energy Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, AER Energy is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Daybreak Oil

Risk-Adjusted Performance

OK

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

Pair Trading with AER Energy and Daybreak Oil

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

The idea behind AER Energy Resources and Daybreak Oil and 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.