Correlation Between Barnwell Industries and Evolution Petroleum

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

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

Diversification Opportunities for Barnwell Industries and Evolution Petroleum

-0.52

Correlation Coefficient

Barnwell Industries  Evolution Petroleum

Excellent diversification

The 3 months correlation between Barnwell and Evolution is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Barnwell Industries and Evolution Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution Petroleum and Barnwell Industries 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 Barnwell Industries are associated (or correlated) with Evolution Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution Petroleum has no effect on the direction of Barnwell Industries i.e., Barnwell Industries and Evolution Petroleum go up and down completely randomly.

Pair Corralation between Barnwell Industries and Evolution Petroleum

Considering the 90-day investment horizon Barnwell Industries is expected to under-perform the Evolution Petroleum. In addition to that, Barnwell Industries is 1.41 times more volatile than Evolution Petroleum. It trades about -0.15 of its total potential returns per unit of risk. Evolution Petroleum is currently generating about 0.05 per unit of volatility. If you would invest  541.00  in Evolution Petroleum on September 14, 2024 and sell it today you would earn a total of  25.00  from holding Evolution Petroleum or generate 4.62% return on investment over 90 days.

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

Barnwell Industries  vs.  Evolution Petroleum

Barnwell Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Barnwell Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Evolution Petroleum

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution Petroleum are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Evolution Petroleum is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Barnwell Industries and Evolution Petroleum

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

The idea behind Barnwell Industries and Evolution Petroleum 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.