Correlation Between Gulf Keystone and GeoPark

Can any of the company-specific risk be diversified away by investing in both Gulf Keystone and GeoPark 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 GeoPark 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 GeoPark, you can compare the effects of market volatilities on Gulf Keystone and GeoPark 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 GeoPark. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gulf Keystone and GeoPark.

Diversification Opportunities for Gulf Keystone and GeoPark

0.56

Correlation Coefficient

Gulf Keystone  GeoPark

Very weak diversification

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

Pair Corralation between Gulf Keystone and GeoPark

Assuming the 90 days horizon Gulf Keystone Petroleum is expected to generate 2.85 times more return on investment than GeoPark. However, Gulf Keystone is 2.85 times more volatile than GeoPark. It trades about 0.04 of its potential returns per unit of risk. GeoPark is currently generating about 0.01 per unit of risk. 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

Gulf Keystone Petroleum  vs.  GeoPark

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.

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.

Pair Trading with Gulf Keystone and GeoPark

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

The idea behind Gulf Keystone Petroleum and GeoPark 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 .