Correlation Between Six Flags and Sky Petroleum

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

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

Diversification Opportunities for Six Flags and Sky Petroleum

-0.36

Correlation Coefficient

Six Flags  Sky Petroleum

Very good diversification

The 3 months correlation between Six and Sky is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Six Flags Entertainment and Sky Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sky Petroleum and Six Flags 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 Six Flags Entertainment are associated (or correlated) with Sky Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sky Petroleum has no effect on the direction of Six Flags i.e., Six Flags and Sky Petroleum go up and down completely randomly.

Pair Corralation between Six Flags and Sky Petroleum

Considering the 90-day investment horizon Six Flags is expected to generate 95.06 times less return on investment than Sky Petroleum. But when comparing it to its historical volatility, Six Flags Entertainment is 36.34 times less risky than Sky Petroleum. It trades about 0.03 of its potential returns per unit of risk. Sky Petroleum is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.01  in Sky Petroleum on October 5, 2024 and sell it today you would earn a total of  0.01  from holding Sky Petroleum or generate 100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Six Flags Entertainment  vs.  Sky Petroleum

Six Flags Entertainment

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Six Flags Entertainment are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Six Flags displayed solid returns over the last few months and may actually be approaching a breakup point.

Sky Petroleum

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Six Flags and Sky Petroleum

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

The idea behind Six Flags Entertainment and Sky 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 Anywhere module to track or share privately all of your investments from the convenience of any device.