Correlation Between APA and PetroShale

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

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

Diversification Opportunities for APA and PetroShale

-0.36

Correlation Coefficient

APA  PetroShale

Very good diversification

The 3 months correlation between APA and PetroShale is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and PetroShale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroShale and APA 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 APA Corporation are associated (or correlated) with PetroShale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroShale has no effect on the direction of APA i.e., APA and PetroShale go up and down completely randomly.

Pair Corralation between APA and PetroShale

Considering the 90-day investment horizon APA Corporation is expected to under-perform the PetroShale. But the stock apears to be less risky and, when comparing its historical volatility, APA Corporation is 1.02 times less risky than PetroShale. The stock trades about -0.01 of its potential returns per unit of risk. The PetroShale is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  27.00  in PetroShale on December 26, 2024 and sell it today you would earn a total of  0.00  from holding PetroShale or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	83.33%
Values	Daily Returns

APA Corp.  vs.  PetroShale

APA Corporation

Risk-Adjusted Performance

Very Weak

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

PetroShale

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PetroShale are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, PetroShale is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with APA and PetroShale

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

The idea behind APA Corporation and PetroShale 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.