Correlation Between East West and Invictus Energy

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

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

Diversification Opportunities for East West and Invictus Energy

0.2

Correlation Coefficient

East West  Invictus Energy

Modest diversification

The 3 months correlation between East and Invictus is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding East West Petroleum and Invictus Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invictus Energy and East West 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 East West Petroleum are associated (or correlated) with Invictus Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invictus Energy has no effect on the direction of East West i.e., East West and Invictus Energy go up and down completely randomly.

Pair Corralation between East West and Invictus Energy

Assuming the 90 days horizon East West Petroleum is expected to generate 6.29 times more return on investment than Invictus Energy. However, East West is 6.29 times more volatile than Invictus Energy Limited. It trades about 0.2 of its potential returns per unit of risk. Invictus Energy Limited is currently generating about 0.02 per unit of risk. If you would invest  7.00  in East West Petroleum on October 4, 2024 and sell it today you would lose (4.50) from holding East West Petroleum or give up 64.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.4%
Values	Daily Returns

East West Petroleum  vs.  Invictus Energy Limited

East West Petroleum

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in East West Petroleum are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, East West reported solid returns over the last few months and may actually be approaching a breakup point.

Invictus Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invictus Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Invictus Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with East West and Invictus Energy

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

The idea behind East West Petroleum and Invictus Energy Limited 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.