Correlation Between East West and Magnolia Oil

Can any of the company-specific risk be diversified away by investing in both East West 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 East West and Magnolia Oil 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 Magnolia Oil Gas, you can compare the effects of market volatilities on East West 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 East West with a short position of Magnolia Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and Magnolia Oil.

Diversification Opportunities for East West and Magnolia Oil

0.3

Correlation Coefficient

East West  Magnolia Oil

Weak diversification

The 3 months correlation between East and Magnolia is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding East West 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 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 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 East West i.e., East West and Magnolia Oil go up and down completely randomly.

Pair Corralation between East West and Magnolia Oil

Assuming the 90 days horizon East West Petroleum is expected to generate 25.79 times more return on investment than Magnolia Oil. However, East West is 25.79 times more volatile than Magnolia Oil Gas. It trades about 0.2 of its potential returns per unit of risk. Magnolia Oil Gas is currently generating about 0.01 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.  Magnolia Oil Gas

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.

Magnolia Oil Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magnolia Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with East West and Magnolia Oil

The main advantage of trading using opposite East West and Magnolia Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East West 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 East West 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.