Correlation Between Evolution Petroleum and GeoPark

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

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

Diversification Opportunities for Evolution Petroleum and GeoPark

0.69

Correlation Coefficient

Evolution Petroleum  GeoPark

Poor diversification

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

Pair Corralation between Evolution Petroleum and GeoPark

Considering the 90-day investment horizon Evolution Petroleum is expected to generate 0.46 times more return on investment than GeoPark. However, Evolution Petroleum is 2.2 times less risky than GeoPark. It trades about 0.03 of its potential returns per unit of risk. GeoPark is currently generating about -0.05 per unit of risk. If you would invest  500.00  in Evolution Petroleum on December 30, 2024 and sell it today you would earn a total of  12.00  from holding Evolution Petroleum or generate 2.4% 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.  GeoPark

Evolution Petroleum

Risk-Adjusted Performance

Weak

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.

GeoPark

Risk-Adjusted Performance

Very Weak

Over the last 90 days GeoPark has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Evolution Petroleum and GeoPark

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

The idea behind Evolution Petroleum and GeoPark 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.