Correlation Between EnQuest PLC and Rockhopper Exploration

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

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

Diversification Opportunities for EnQuest PLC and Rockhopper Exploration

0.43

Correlation Coefficient

EnQuest PLC  Rockhopper Exploration

Very weak diversification

The 3 months correlation between EnQuest and Rockhopper is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding EnQuest PLC and Rockhopper Exploration plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rockhopper Exploration 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 Rockhopper Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rockhopper Exploration has no effect on the direction of EnQuest PLC i.e., EnQuest PLC and Rockhopper Exploration go up and down completely randomly.

Pair Corralation between EnQuest PLC and Rockhopper Exploration

Assuming the 90 days horizon EnQuest PLC is expected to under-perform the Rockhopper Exploration. But the pink sheet apears to be less risky and, when comparing its historical volatility, EnQuest PLC is 1.78 times less risky than Rockhopper Exploration. The pink sheet trades about -0.04 of its potential returns per unit of risk. The Rockhopper Exploration plc is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  20.00  in Rockhopper Exploration plc on September 3, 2024 and sell it today you would earn a total of  2.00  from holding Rockhopper Exploration plc or generate 10.0% return on investment over 90 days.

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

EnQuest PLC  vs.  Rockhopper Exploration plc

EnQuest PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EnQuest PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Rockhopper Exploration

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rockhopper Exploration plc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Rockhopper Exploration reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EnQuest PLC and Rockhopper Exploration

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

The idea behind EnQuest PLC and Rockhopper Exploration plc 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..