Correlation Between ESSA Pharma and Sentry Petroleum

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

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

Diversification Opportunities for ESSA Pharma and Sentry Petroleum

0.0

Correlation Coefficient

ESSA Pharma  Sentry Petroleum

Pay attention - limited upside

The 3 months correlation between ESSA and Sentry is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Pharma and Sentry Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sentry Petroleum and ESSA Pharma 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 ESSA Pharma are associated (or correlated) with Sentry Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sentry Petroleum has no effect on the direction of ESSA Pharma i.e., ESSA Pharma and Sentry Petroleum go up and down completely randomly.

Pair Corralation between ESSA Pharma and Sentry Petroleum

Given the investment horizon of 90 days ESSA Pharma is expected to generate 1.96 times more return on investment than Sentry Petroleum. However, ESSA Pharma is 1.96 times more volatile than Sentry Petroleum. It trades about 0.02 of its potential returns per unit of risk. Sentry Petroleum is currently generating about -0.04 per unit of risk. If you would invest  256.00  in ESSA Pharma on September 23, 2024 and sell it today you would lose (96.00) from holding ESSA Pharma or give up 37.5% of portfolio value over 90 days.

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

ESSA Pharma  vs.  Sentry Petroleum

ESSA Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESSA Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Sentry Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sentry Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Sentry Petroleum is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ESSA Pharma and Sentry Petroleum

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

The idea behind ESSA Pharma and Sentry Petroleum 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.

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.