Correlation Between Vaalco Energy and North European

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

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

Diversification Opportunities for Vaalco Energy and North European

0.21

Correlation Coefficient

Vaalco Energy  North European

Modest diversification

The 3 months correlation between Vaalco and North is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Vaalco Energy and North European Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North European Oil and Vaalco 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 Vaalco Energy are associated (or correlated) with North European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North European Oil has no effect on the direction of Vaalco Energy i.e., Vaalco Energy and North European go up and down completely randomly.

Pair Corralation between Vaalco Energy and North European

Considering the 90-day investment horizon Vaalco Energy is expected to under-perform the North European. But the stock apears to be less risky and, when comparing its historical volatility, Vaalco Energy is 1.25 times less risky than North European. The stock trades about -0.02 of its potential returns per unit of risk. The North European Oil is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  389.00  in North European Oil on December 28, 2024 and sell it today you would earn a total of  69.00  from holding North European Oil or generate 17.74% return on investment over 90 days.

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

Vaalco Energy  vs.  North European Oil

Vaalco Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vaalco Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Vaalco Energy is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

North European Oil

Risk-Adjusted Performance

OK

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

Pair Trading with Vaalco Energy and North European

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

The idea behind Vaalco Energy and North European Oil 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.