Correlation Between Environmental and Energy Resources

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

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

Diversification Opportunities for Environmental and Energy Resources

0.48

Correlation Coefficient

Environmental  Energy Resources

Very weak diversification

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

Pair Corralation between Environmental and Energy Resources

Assuming the 90 days trading horizon Environmental is expected to generate 12.48 times less return on investment than Energy Resources. But when comparing it to its historical volatility, The Environmental Group is 11.51 times less risky than Energy Resources. It trades about 0.08 of its potential returns per unit of risk. Energy Resources is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.30  in Energy Resources on September 17, 2024 and sell it today you would lose (0.10) from holding Energy Resources or give up 33.33% of portfolio value over 90 days.

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

The Environmental Group  vs.  Energy Resources

The Environmental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Environmental Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's essential indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Energy Resources

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Environmental and Energy Resources

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

The idea behind The Environmental Group and Energy 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.

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.