Correlation Between Gulf Keystone and Freehold Royalties

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

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

Diversification Opportunities for Gulf Keystone and Freehold Royalties

0.59

Correlation Coefficient

Gulf Keystone  Freehold Royalties

Very weak diversification

The 3 months correlation between Gulf and Freehold is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Gulf Keystone Petroleum and Freehold Royalties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freehold Royalties and Gulf Keystone 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 Gulf Keystone Petroleum are associated (or correlated) with Freehold Royalties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freehold Royalties has no effect on the direction of Gulf Keystone i.e., Gulf Keystone and Freehold Royalties go up and down completely randomly.

Pair Corralation between Gulf Keystone and Freehold Royalties

Assuming the 90 days horizon Gulf Keystone Petroleum is expected to generate 3.56 times more return on investment than Freehold Royalties. However, Gulf Keystone is 3.56 times more volatile than Freehold Royalties. It trades about 0.19 of its potential returns per unit of risk. Freehold Royalties is currently generating about -0.14 per unit of risk. If you would invest  180.00  in Gulf Keystone Petroleum on December 1, 2024 and sell it today you would earn a total of  82.00  from holding Gulf Keystone Petroleum or generate 45.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	81.67%
Values	Daily Returns

Gulf Keystone Petroleum  vs.  Freehold Royalties

Gulf Keystone Petroleum

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Keystone Petroleum are ranked lower than 14 (%) 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.

Freehold Royalties

Risk-Adjusted Performance

Very Weak

Over the last 90 days Freehold Royalties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Gulf Keystone and Freehold Royalties

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

The idea behind Gulf Keystone Petroleum and Freehold Royalties 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .