Correlation Between GeoPark and Vaalco Energy

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

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

Diversification Opportunities for GeoPark and Vaalco Energy

0.79

Correlation Coefficient

GeoPark  Vaalco Energy

Poor diversification

The 3 months correlation between GeoPark and Vaalco is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding GeoPark and Vaalco Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vaalco Energy and GeoPark 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 GeoPark are associated (or correlated) with Vaalco Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vaalco Energy has no effect on the direction of GeoPark i.e., GeoPark and Vaalco Energy go up and down completely randomly.

Pair Corralation between GeoPark and Vaalco Energy

Given the investment horizon of 90 days GeoPark is expected to under-perform the Vaalco Energy. In addition to that, GeoPark is 1.12 times more volatile than Vaalco Energy. It trades about -0.05 of its total potential returns per unit of risk. Vaalco Energy is currently generating about -0.02 per unit of volatility. If you would invest  418.00  in Vaalco Energy on December 29, 2024 and sell it today you would lose (26.00) from holding Vaalco Energy or give up 6.22% of portfolio value over 90 days.

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

GeoPark  vs.  Vaalco Energy

GeoPark

Risk-Adjusted Performance

Very Weak

Over the last 90 days GeoPark has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Vaalco Energy

Risk-Adjusted Performance

Very Weak

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

Pair Trading with GeoPark and Vaalco Energy

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

The idea behind GeoPark and Vaalco Energy 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.