Correlation Between Geo Energy and Natural Resource

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

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

Diversification Opportunities for Geo Energy and Natural Resource

0.35

Correlation Coefficient

Geo Energy  Natural Resource

Weak diversification

The 3 months correlation between Geo and Natural is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Geo Energy Resources and Natural Resource Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Resource Partners and Geo Energy 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 Geo Energy Resources are associated (or correlated) with Natural Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Resource Partners has no effect on the direction of Geo Energy i.e., Geo Energy and Natural Resource go up and down completely randomly.

Pair Corralation between Geo Energy and Natural Resource

Assuming the 90 days horizon Geo Energy Resources is expected to generate 1.06 times more return on investment than Natural Resource. However, Geo Energy is 1.06 times more volatile than Natural Resource Partners. It trades about 0.18 of its potential returns per unit of risk. Natural Resource Partners is currently generating about 0.01 per unit of risk. If you would invest  17.00  in Geo Energy Resources on December 28, 2024 and sell it today you would earn a total of  6.00  from holding Geo Energy Resources or generate 35.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Geo Energy Resources  vs.  Natural Resource Partners

Geo Energy Resources

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Geo Energy Resources are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Geo Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Natural Resource Partners

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Geo Energy and Natural Resource

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

The idea behind Geo Energy Resources and Natural Resource Partners 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.