Correlation Between GeoPark and Gulf Keystone

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

By analyzing existing cross correlation between GeoPark and Gulf Keystone Petroleum, you can compare the effects of market volatilities on GeoPark and Gulf Keystone 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 Gulf Keystone. Check out your portfolio center. Please also check ongoing floating volatility patterns of GeoPark and Gulf Keystone.

Diversification Opportunities for GeoPark and Gulf Keystone

0.56

Correlation Coefficient

GeoPark  Gulf Keystone

Very weak diversification

The 3 months correlation between GeoPark and Gulf is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding GeoPark and Gulf Keystone Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gulf Keystone Petroleum 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 Gulf Keystone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gulf Keystone Petroleum has no effect on the direction of GeoPark i.e., GeoPark and Gulf Keystone go up and down completely randomly.

Pair Corralation between GeoPark and Gulf Keystone

Given the investment horizon of 90 days GeoPark is expected to generate 7.4 times less return on investment than Gulf Keystone. But when comparing it to its historical volatility, GeoPark is 2.85 times less risky than Gulf Keystone. It trades about 0.01 of its potential returns per unit of risk. Gulf Keystone Petroleum is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  178.00  in Gulf Keystone Petroleum on October 5, 2024 and sell it today you would earn a total of  8.00  from holding Gulf Keystone Petroleum or generate 4.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.56%
Values	Daily Returns

GeoPark  vs.  Gulf Keystone Petroleum

GeoPark

Risk-Adjusted Performance

7 of 100

OK

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

Gulf Keystone Petroleum

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Keystone Petroleum are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Gulf Keystone reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GeoPark and Gulf Keystone

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

The idea behind GeoPark and Gulf Keystone 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.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.