Correlation Between AP Møller and InPlay Oil

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

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

Diversification Opportunities for AP Møller and InPlay Oil

-0.4

Correlation Coefficient

AP Møller  InPlay Oil

Very good diversification

The 3 months correlation between DP4B and InPlay is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding AP Mller and InPlay Oil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InPlay Oil Corp and AP Møller 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 AP Mller are associated (or correlated) with InPlay Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InPlay Oil Corp has no effect on the direction of AP Møller i.e., AP Møller and InPlay Oil go up and down completely randomly.

Pair Corralation between AP Møller and InPlay Oil

Assuming the 90 days trading horizon AP Mller is expected to generate 0.84 times more return on investment than InPlay Oil. However, AP Mller is 1.2 times less risky than InPlay Oil. It trades about 0.09 of its potential returns per unit of risk. InPlay Oil Corp is currently generating about 0.02 per unit of risk. If you would invest  146,400  in AP Mller on December 29, 2024 and sell it today you would earn a total of  17,750  from holding AP Mller or generate 12.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

AP Mller   vs.  InPlay Oil Corp

AP Møller

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AP Mller are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, AP Møller reported solid returns over the last few months and may actually be approaching a breakup point.

InPlay Oil Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in InPlay Oil Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, InPlay Oil is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with AP Møller and InPlay Oil

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

The idea behind AP Mller and InPlay Oil Corp 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.