Correlation Between GeoPark and Murphy Oil

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

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

Diversification Opportunities for GeoPark and Murphy Oil

0.88

Correlation Coefficient

GeoPark  Murphy Oil

Very poor diversification

The 3 months correlation between GeoPark and Murphy is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding GeoPark and Murphy Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Murphy Oil 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 Murphy Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Murphy Oil has no effect on the direction of GeoPark i.e., GeoPark and Murphy Oil go up and down completely randomly.

Pair Corralation between GeoPark and Murphy Oil

Given the investment horizon of 90 days GeoPark is expected to under-perform the Murphy Oil. In addition to that, GeoPark is 1.29 times more volatile than Murphy Oil. It trades about -0.05 of its total potential returns per unit of risk. Murphy Oil is currently generating about -0.01 per unit of volatility. If you would invest  2,925  in Murphy Oil on December 29, 2024 and sell it today you would lose (75.00) from holding Murphy Oil or give up 2.56% of portfolio value over 90 days.

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

GeoPark  vs.  Murphy Oil

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.

Murphy Oil

Risk-Adjusted Performance

Very Weak

Over the last 90 days Murphy Oil has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Murphy Oil is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with GeoPark and Murphy Oil

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

The idea behind GeoPark and Murphy Oil 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.