Correlation Between GeoPark and North European

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

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

Diversification Opportunities for GeoPark and North European

0.39

Correlation Coefficient

GeoPark  North European

Weak diversification

The 3 months correlation between GeoPark and North is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding GeoPark and North European Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North European 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 North European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North European Oil has no effect on the direction of GeoPark i.e., GeoPark and North European go up and down completely randomly.

Pair Corralation between GeoPark and North European

Given the investment horizon of 90 days GeoPark is expected to under-perform the North European. But the stock apears to be less risky and, when comparing its historical volatility, GeoPark is 1.11 times less risky than North European. The stock trades about -0.05 of its potential returns per unit of risk. The North European Oil is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  389.00  in North European Oil on December 28, 2024 and sell it today you would earn a total of  83.00  from holding North European Oil or generate 21.34% return on investment over 90 days.

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

GeoPark  vs.  North European 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.

North European Oil

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North European Oil are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, North European unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GeoPark and North European

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

The idea behind GeoPark and North European 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.