Correlation Between Energy Resources and Recce

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

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

Diversification Opportunities for Energy Resources and Recce

0.41

Correlation Coefficient

Energy Resources  Recce

Very weak diversification

The 3 months correlation between Energy and Recce is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Energy Resources and Recce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Recce and Energy Resources 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 Energy Resources are associated (or correlated) with Recce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Recce has no effect on the direction of Energy Resources i.e., Energy Resources and Recce go up and down completely randomly.

Pair Corralation between Energy Resources and Recce

Assuming the 90 days trading horizon Energy Resources is expected to generate 9.33 times more return on investment than Recce. However, Energy Resources is 9.33 times more volatile than Recce. It trades about 0.09 of its potential returns per unit of risk. Recce is currently generating about -0.01 per unit of risk. If you would invest  1.10  in Energy Resources on October 3, 2024 and sell it today you would lose (0.80) from holding Energy Resources or give up 72.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Energy Resources  vs.  Recce

Energy Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Energy Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Recce

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Recce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Recce is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Energy Resources and Recce

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

The idea behind Energy Resources and Recce 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.