Correlation Between Evolution Petroleum and Dorchester Minerals

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

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

Diversification Opportunities for Evolution Petroleum and Dorchester Minerals

0.63

Correlation Coefficient

Evolution Petroleum  Dorchester Minerals

Poor diversification

The 3 months correlation between Evolution and Dorchester is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Evolution Petroleum and Dorchester Minerals LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dorchester Minerals and Evolution 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 Evolution Petroleum are associated (or correlated) with Dorchester Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dorchester Minerals has no effect on the direction of Evolution Petroleum i.e., Evolution Petroleum and Dorchester Minerals go up and down completely randomly.

Pair Corralation between Evolution Petroleum and Dorchester Minerals

Considering the 90-day investment horizon Evolution Petroleum is expected to under-perform the Dorchester Minerals. In addition to that, Evolution Petroleum is 1.8 times more volatile than Dorchester Minerals LP. It trades about -0.02 of its total potential returns per unit of risk. Dorchester Minerals LP is currently generating about 0.04 per unit of volatility. If you would invest  2,782  in Dorchester Minerals LP on September 12, 2024 and sell it today you would earn a total of  472.00  from holding Dorchester Minerals LP or generate 16.97% return on investment over 90 days.

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

Evolution Petroleum  vs.  Dorchester Minerals LP

Evolution Petroleum

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution Petroleum are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Evolution Petroleum is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Dorchester Minerals

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dorchester Minerals LP are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating essential indicators, Dorchester Minerals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Evolution Petroleum and Dorchester Minerals

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

The idea behind Evolution Petroleum and Dorchester Minerals LP 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 Transaction History module to view history of all your transactions and understand their impact on performance.