Correlation Between Empire Petroleum and SandRidge Energy

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

Diversification Opportunities for Empire Petroleum and SandRidge Energy

-0.35

Correlation Coefficient

Empire Petroleum  SandRidge Energy

Very good diversification

The 3 months correlation between Empire and SandRidge is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Empire Petroleum Corp and SandRidge Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SandRidge Energy 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 SandRidge Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SandRidge Energy has no effect on the direction of Empire Petroleum i.e., Empire Petroleum and SandRidge Energy go up and down completely randomly.

Pair Corralation between Empire Petroleum and SandRidge Energy

Allowing for the 90-day total investment horizon Empire Petroleum Corp is expected to generate 2.82 times more return on investment than SandRidge Energy. However, Empire Petroleum is 2.82 times more volatile than SandRidge Energy. It trades about 0.18 of its potential returns per unit of risk. SandRidge Energy is currently generating about -0.16 per unit of risk. If you would invest  552.00  in Empire Petroleum Corp on September 19, 2024 and sell it today you would earn a total of  80.00  from holding Empire Petroleum Corp or generate 14.49% return on investment over 90 days.

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

Empire Petroleum Corp  vs.  SandRidge Energy

Empire Petroleum Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Empire Petroleum Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Empire Petroleum reported solid returns over the last few months and may actually be approaching a breakup point.

SandRidge Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SandRidge Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Empire Petroleum and SandRidge Energy

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

The idea behind Empire Petroleum Corp and SandRidge Energy 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.