Correlation Between Oil Gas and Intermediate-term

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

Diversification Opportunities for Oil Gas and Intermediate-term

0.38

Correlation Coefficient

Oil Gas  Intermediate-term

Weak diversification

The 3 months correlation between Oil and Intermediate-term is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Oil Gas Ultrasector and Intermediate Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term Bond 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 Intermediate-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Bond has no effect on the direction of Oil Gas i.e., Oil Gas and Intermediate-term go up and down completely randomly.

Pair Corralation between Oil Gas and Intermediate-term

Assuming the 90 days horizon Oil Gas Ultrasector is expected to generate 5.84 times more return on investment than Intermediate-term. However, Oil Gas is 5.84 times more volatile than Intermediate Term Bond Fund. It trades about 0.12 of its potential returns per unit of risk. Intermediate Term Bond Fund is currently generating about 0.3 per unit of risk. If you would invest  3,472  in Oil Gas Ultrasector on December 4, 2024 and sell it today you would earn a total of  149.00  from holding Oil Gas Ultrasector or generate 4.29% return on investment over 90 days.

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

Oil Gas Ultrasector  vs.  Intermediate Term Bond Fund

Oil Gas Ultrasector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Oil Gas Ultrasector has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Oil Gas is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Intermediate Term Bond

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Intermediate Term Bond Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Intermediate-term 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 Intermediate-term

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

The idea behind Oil Gas Ultrasector and Intermediate Term Bond 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.