Correlation Between Daybreak Oil and ADX Energy

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

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

Diversification Opportunities for Daybreak Oil and ADX Energy

0.48

Correlation Coefficient

Daybreak Oil  ADX Energy

Very weak diversification

The 3 months correlation between Daybreak and ADX is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Daybreak Oil and and ADX Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADX Energy and Daybreak Oil 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 Daybreak Oil and are associated (or correlated) with ADX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADX Energy has no effect on the direction of Daybreak Oil i.e., Daybreak Oil and ADX Energy go up and down completely randomly.

Pair Corralation between Daybreak Oil and ADX Energy

Given the investment horizon of 90 days Daybreak Oil is expected to generate 2.5 times less return on investment than ADX Energy. But when comparing it to its historical volatility, Daybreak Oil and is 1.75 times less risky than ADX Energy. It trades about 0.03 of its potential returns per unit of risk. ADX Energy is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4.00  in ADX Energy on December 2, 2024 and sell it today you would lose (2.92) from holding ADX Energy or give up 73.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Daybreak Oil and  vs.  ADX Energy

Daybreak Oil

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Daybreak Oil and are ranked lower than 2 (%) 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.

ADX Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ADX Energy are ranked lower than 3 (%) 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.

Pair Trading with Daybreak Oil and ADX Energy

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

The idea behind Daybreak Oil and and ADX Energy 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.