Correlation Between EnQuest PLC and PetroShale

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

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

Diversification Opportunities for EnQuest PLC and PetroShale

-0.32

Correlation Coefficient

EnQuest PLC  PetroShale

Very good diversification

The 3 months correlation between EnQuest and PetroShale is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding EnQuest PLC and PetroShale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroShale and EnQuest PLC 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 EnQuest PLC are associated (or correlated) with PetroShale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroShale has no effect on the direction of EnQuest PLC i.e., EnQuest PLC and PetroShale go up and down completely randomly.

Pair Corralation between EnQuest PLC and PetroShale

Assuming the 90 days horizon EnQuest PLC is expected to generate 2.05 times more return on investment than PetroShale. However, EnQuest PLC is 2.05 times more volatile than PetroShale. It trades about 0.06 of its potential returns per unit of risk. PetroShale is currently generating about -0.02 per unit of risk. If you would invest  14.00  in EnQuest PLC on December 30, 2024 and sell it today you would earn a total of  2.00  from holding EnQuest PLC or generate 14.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	77.42%
Values	Daily Returns

EnQuest PLC  vs.  PetroShale

EnQuest PLC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EnQuest PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, EnQuest PLC reported solid returns over the last few months and may actually be approaching a breakup point.

PetroShale

Risk-Adjusted Performance

Very Weak

Over the last 90 days PetroShale has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, PetroShale is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with EnQuest PLC and PetroShale

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

The idea behind EnQuest PLC and PetroShale 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.