Correlation Between Arca Continental and World Oil

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

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

Diversification Opportunities for Arca Continental and World Oil

-0.82

Correlation Coefficient

Arca Continental  World Oil

Pay attention - limited upside

The 3 months correlation between Arca and World is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Arca Continental SAB and World Oil Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Oil Group and Arca Continental 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 Arca Continental SAB are associated (or correlated) with World Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Oil Group has no effect on the direction of Arca Continental i.e., Arca Continental and World Oil go up and down completely randomly.

Pair Corralation between Arca Continental and World Oil

Assuming the 90 days horizon Arca Continental is expected to generate 5.95 times less return on investment than World Oil. But when comparing it to its historical volatility, Arca Continental SAB is 4.48 times less risky than World Oil. It trades about 0.02 of its potential returns per unit of risk. World Oil Group is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2.48  in World Oil Group on December 3, 2024 and sell it today you would lose (1.63) from holding World Oil Group or give up 65.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	77.06%
Values	Daily Returns

Arca Continental SAB  vs.  World Oil Group

Arca Continental SAB

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arca Continental SAB are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Arca Continental reported solid returns over the last few months and may actually be approaching a breakup point.

World Oil Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days World Oil Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Arca Continental and World Oil

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

The idea behind Arca Continental SAB and World Oil Group 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.