Correlation Between Oil Gas and International Stock

Can any of the company-specific risk be diversified away by investing in both Oil Gas and International Stock 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 International Stock 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 International Stock Fund, you can compare the effects of market volatilities on Oil Gas and International Stock 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 International Stock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oil Gas and International Stock.

Diversification Opportunities for Oil Gas and International Stock

0.4

Correlation Coefficient

Oil Gas  International Stock

Very weak diversification

The 3 months correlation between Oil and International is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Oil Gas Ultrasector and International Stock Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Stock 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 International Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Stock has no effect on the direction of Oil Gas i.e., Oil Gas and International Stock go up and down completely randomly.

Pair Corralation between Oil Gas and International Stock

Assuming the 90 days horizon Oil Gas Ultrasector is expected to generate 2.02 times more return on investment than International Stock. However, Oil Gas is 2.02 times more volatile than International Stock Fund. It trades about 0.12 of its potential returns per unit of risk. International Stock Fund is currently generating about 0.03 per unit of risk. If you would invest  3,252  in Oil Gas Ultrasector on December 22, 2024 and sell it today you would earn a total of  445.00  from holding Oil Gas Ultrasector or generate 13.68% return on investment over 90 days.

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

Oil Gas Ultrasector  vs.  International Stock Fund

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 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Oil Gas showed solid returns over the last few months and may actually be approaching a breakup point.

International Stock

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in International Stock Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, International Stock 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 International Stock

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

The idea behind Oil Gas Ultrasector and International Stock Fund 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.