Correlation Between FAR and Reserve Petroleum

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

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

Diversification Opportunities for FAR and Reserve Petroleum

-0.54

Correlation Coefficient

FAR  Reserve Petroleum

Excellent diversification

The 3 months correlation between FAR and Reserve is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding FAR Limited and The Reserve Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reserve Petroleum and FAR 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 FAR Limited are associated (or correlated) with Reserve Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reserve Petroleum has no effect on the direction of FAR i.e., FAR and Reserve Petroleum go up and down completely randomly.

Pair Corralation between FAR and Reserve Petroleum

Assuming the 90 days horizon FAR Limited is expected to generate 0.7 times more return on investment than Reserve Petroleum. However, FAR Limited is 1.43 times less risky than Reserve Petroleum. It trades about 0.01 of its potential returns per unit of risk. The Reserve Petroleum is currently generating about -0.05 per unit of risk. If you would invest  31.00  in FAR Limited on September 13, 2024 and sell it today you would earn a total of  0.00  from holding FAR Limited or generate 0.0% return on investment over 90 days.

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

FAR Limited  vs.  The Reserve Petroleum

FAR Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Reserve Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Reserve Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with FAR and Reserve Petroleum

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

The idea behind FAR Limited and The Reserve Petroleum 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.