Correlation Between Evolution Petroleum and San Juan

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

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

Diversification Opportunities for Evolution Petroleum and San Juan

0.56

Correlation Coefficient

Evolution Petroleum  San Juan

Very weak diversification

The 3 months correlation between Evolution and San is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Evolution Petroleum and San Juan Basin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on San Juan Basin 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 San Juan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of San Juan Basin has no effect on the direction of Evolution Petroleum i.e., Evolution Petroleum and San Juan go up and down completely randomly.

Pair Corralation between Evolution Petroleum and San Juan

Considering the 90-day investment horizon Evolution Petroleum is expected to generate 1.08 times less return on investment than San Juan. But when comparing it to its historical volatility, Evolution Petroleum is 1.61 times less risky than San Juan. It trades about 0.31 of its potential returns per unit of risk. San Juan Basin is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  391.00  in San Juan Basin on September 2, 2024 and sell it today you would earn a total of  56.00  from holding San Juan Basin or generate 14.32% return on investment over 90 days.

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

Evolution Petroleum  vs.  San Juan Basin

Evolution Petroleum

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution Petroleum are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Evolution Petroleum displayed solid returns over the last few months and may actually be approaching a breakup point.

San Juan Basin

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in San Juan Basin are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating forward-looking indicators, San Juan unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Evolution Petroleum and San Juan

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

The idea behind Evolution Petroleum and San Juan Basin 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.