Correlation Between Energy Service and Energy Basic

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

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

Diversification Opportunities for Energy Service and Energy Basic

0.0

Correlation Coefficient

Energy Service  Energy Basic

Pay attention - limited upside

The 3 months correlation between Energy and Energy is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Energy Service Portfolio and Energy Basic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Basic Materials and Energy Service 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 Service Portfolio are associated (or correlated) with Energy Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Basic Materials has no effect on the direction of Energy Service i.e., Energy Service and Energy Basic go up and down completely randomly.

Pair Corralation between Energy Service and Energy Basic

If you would invest (100.00) in Energy Service Portfolio on November 29, 2024 and sell it today you would earn a total of  100.00  from holding Energy Service Portfolio or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Energy Service Portfolio  vs.  Energy Basic Materials

Energy Service Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energy Service Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Energy Service is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Energy Basic Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energy Basic Materials has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Energy Basic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Energy Service and Energy Basic

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

The idea behind Energy Service Portfolio and Energy Basic Materials 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.