Correlation Between Falcon Energy and Sego Resources

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

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

Diversification Opportunities for Falcon Energy and Sego Resources

0.29

Correlation Coefficient

Falcon Energy  Sego Resources

Modest diversification

The 3 months correlation between Falcon and Sego is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Falcon Energy Materials and Sego Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sego Resources and Falcon Energy 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 Falcon Energy Materials are associated (or correlated) with Sego Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sego Resources has no effect on the direction of Falcon Energy i.e., Falcon Energy and Sego Resources go up and down completely randomly.

Pair Corralation between Falcon Energy and Sego Resources

Assuming the 90 days trading horizon Falcon Energy is expected to generate 5.16 times less return on investment than Sego Resources. But when comparing it to its historical volatility, Falcon Energy Materials is 2.59 times less risky than Sego Resources. It trades about 0.02 of its potential returns per unit of risk. Sego Resources is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3.00  in Sego Resources on October 10, 2024 and sell it today you would lose (0.50) from holding Sego Resources or give up 16.67% of portfolio value over 90 days.

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

Falcon Energy Materials  vs.  Sego Resources

Falcon Energy Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Falcon Energy Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Falcon Energy is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Sego Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sego Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sego Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Falcon Energy and Sego Resources

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

The idea behind Falcon Energy Materials and Sego Resources 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.