Correlation Between Energy and Gulf Resources

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

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

Diversification Opportunities for Energy and Gulf Resources

-0.3

Correlation Coefficient

Energy  Gulf Resources

Very good diversification

The 3 months correlation between Energy and Gulf is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Energy and Environmental and Gulf Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gulf Resources and Energy 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 Energy and Environmental are associated (or correlated) with Gulf Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gulf Resources has no effect on the direction of Energy i.e., Energy and Gulf Resources go up and down completely randomly.

Pair Corralation between Energy and Gulf Resources

Given the investment horizon of 90 days Energy is expected to generate 1.84 times less return on investment than Gulf Resources. But when comparing it to its historical volatility, Energy and Environmental is 1.44 times less risky than Gulf Resources. It trades about 0.08 of its potential returns per unit of risk. Gulf Resources is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  55.00  in Gulf Resources on December 28, 2024 and sell it today you would earn a total of  17.00  from holding Gulf Resources or generate 30.91% return on investment over 90 days.

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

Energy and Environmental  vs.  Gulf Resources

Energy and Environmental

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Energy and Environmental are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Gulf Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Gulf Resources exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Energy and Gulf Resources

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

The idea behind Energy and Environmental and Gulf Resources 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.