Correlation Between Evolution Petroleum and Magnolia Oil

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

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

Diversification Opportunities for Evolution Petroleum and Magnolia Oil

0.73

Correlation Coefficient

Evolution Petroleum  Magnolia Oil

Poor diversification

The 3 months correlation between Evolution and Magnolia is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Evolution Petroleum and Magnolia Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magnolia Oil Gas 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 Magnolia Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magnolia Oil Gas has no effect on the direction of Evolution Petroleum i.e., Evolution Petroleum and Magnolia Oil go up and down completely randomly.

Pair Corralation between Evolution Petroleum and Magnolia Oil

Considering the 90-day investment horizon Evolution Petroleum is expected to generate 3.25 times less return on investment than Magnolia Oil. But when comparing it to its historical volatility, Evolution Petroleum is 1.31 times less risky than Magnolia Oil. It trades about 0.03 of its potential returns per unit of risk. Magnolia Oil Gas is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,310  in Magnolia Oil Gas on December 29, 2024 and sell it today you would earn a total of  209.00  from holding Magnolia Oil Gas or generate 9.05% 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.  Magnolia Oil Gas

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 current stock price disarray, may contribute to short-term losses for the investors.

Magnolia Oil Gas

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Magnolia Oil Gas are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Magnolia Oil may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Evolution Petroleum and Magnolia Oil

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

The idea behind Evolution Petroleum and Magnolia Oil Gas 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.