Correlation Between Materials Petroleum and Foreign Trade

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

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

Diversification Opportunities for Materials Petroleum and Foreign Trade

-0.06

Correlation Coefficient

Materials Petroleum  Foreign Trade

Good diversification

The 3 months correlation between Materials and Foreign is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Materials Petroleum JSC and Foreign Trade Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foreign Trade Development and Materials Petroleum 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 Materials Petroleum JSC are associated (or correlated) with Foreign Trade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foreign Trade Development has no effect on the direction of Materials Petroleum i.e., Materials Petroleum and Foreign Trade go up and down completely randomly.

Pair Corralation between Materials Petroleum and Foreign Trade

Assuming the 90 days trading horizon Materials Petroleum JSC is expected to generate 1.57 times more return on investment than Foreign Trade. However, Materials Petroleum is 1.57 times more volatile than Foreign Trade Development. It trades about 0.13 of its potential returns per unit of risk. Foreign Trade Development is currently generating about 0.02 per unit of risk. If you would invest  2,633,333  in Materials Petroleum JSC on December 24, 2024 and sell it today you would earn a total of  401,667  from holding Materials Petroleum JSC or generate 15.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	59.46%
Values	Daily Returns

Materials Petroleum JSC  vs.  Foreign Trade Development

Materials Petroleum JSC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Materials Petroleum JSC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Materials Petroleum displayed solid returns over the last few months and may actually be approaching a breakup point.

Foreign Trade Development

Risk-Adjusted Performance

Weak

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

Pair Trading with Materials Petroleum and Foreign Trade

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

The idea behind Materials Petroleum JSC and Foreign Trade Development 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.