Correlation Between Oil Gas and Energy Fund

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

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

Diversification Opportunities for Oil Gas and Energy Fund

0.83

Correlation Coefficient

Oil Gas  Energy Fund

Very poor diversification

The 3 months correlation between Oil and Energy is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Oil Gas Ultrasector and Energy Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Fund Investor and Oil Gas 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 Oil Gas Ultrasector are associated (or correlated) with Energy Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Fund Investor has no effect on the direction of Oil Gas i.e., Oil Gas and Energy Fund go up and down completely randomly.

Pair Corralation between Oil Gas and Energy Fund

Assuming the 90 days horizon Oil Gas Ultrasector is expected to generate 1.45 times more return on investment than Energy Fund. However, Oil Gas is 1.45 times more volatile than Energy Fund Investor. It trades about 0.13 of its potential returns per unit of risk. Energy Fund Investor is currently generating about 0.06 per unit of risk. If you would invest  3,739  in Oil Gas Ultrasector on December 19, 2024 and sell it today you would earn a total of  542.00  from holding Oil Gas Ultrasector or generate 14.5% return on investment over 90 days.

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

Oil Gas Ultrasector  vs.  Energy Fund Investor

Oil Gas Ultrasector

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Oil Gas Ultrasector are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Oil Gas showed solid returns over the last few months and may actually be approaching a breakup point.

Energy Fund Investor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Fund Investor are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Energy Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Oil Gas and Energy Fund

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

The idea behind Oil Gas Ultrasector and Energy Fund Investor 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.