Correlation Between Empire Petroleum and BKV

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

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

Diversification Opportunities for Empire Petroleum and BKV

0.69

Correlation Coefficient

Empire Petroleum  BKV

Poor diversification

The 3 months correlation between Empire and BKV is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Empire Petroleum Corp and BKV Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BKV Corporation and Empire Petroleum 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 Empire Petroleum Corp are associated (or correlated) with BKV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BKV Corporation has no effect on the direction of Empire Petroleum i.e., Empire Petroleum and BKV go up and down completely randomly.

Pair Corralation between Empire Petroleum and BKV

Allowing for the 90-day total investment horizon Empire Petroleum Corp is expected to generate 2.41 times more return on investment than BKV. However, Empire Petroleum is 2.41 times more volatile than BKV Corporation. It trades about 0.13 of its potential returns per unit of risk. BKV Corporation is currently generating about 0.18 per unit of risk. If you would invest  498.00  in Empire Petroleum Corp on September 22, 2024 and sell it today you would earn a total of  173.00  from holding Empire Petroleum Corp or generate 34.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.31%
Values	Daily Returns

Empire Petroleum Corp  vs.  BKV Corp.

Empire Petroleum Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Empire Petroleum Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Empire Petroleum reported solid returns over the last few months and may actually be approaching a breakup point.

BKV Corporation

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BKV Corporation are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, BKV showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Empire Petroleum and BKV

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

The idea behind Empire Petroleum Corp and BKV Corporation 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.