Correlation Between Gulf Energy and Demco Public

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

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

Diversification Opportunities for Gulf Energy and Demco Public

0.12

Correlation Coefficient

Gulf Energy  Demco Public

Average diversification

The 3 months correlation between Gulf and Demco is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Gulf Energy Development and Demco Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Demco Public and Gulf 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 Gulf Energy Development are associated (or correlated) with Demco Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Demco Public has no effect on the direction of Gulf Energy i.e., Gulf Energy and Demco Public go up and down completely randomly.

Pair Corralation between Gulf Energy and Demco Public

Assuming the 90 days trading horizon Gulf Energy is expected to generate 47.74 times less return on investment than Demco Public. But when comparing it to its historical volatility, Gulf Energy Development is 64.44 times less risky than Demco Public. It trades about 0.15 of its potential returns per unit of risk. Demco Public is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  356.00  in Demco Public on September 2, 2024 and sell it today you would lose (10.00) from holding Demco Public or give up 2.81% of portfolio value over 90 days.

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

Gulf Energy Development  vs.  Demco Public

Gulf Energy Development

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Energy Development are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Gulf Energy disclosed solid returns over the last few months and may actually be approaching a breakup point.

Demco Public

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Demco Public are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting fundamental drivers, Demco Public sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gulf Energy and Demco Public

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

The idea behind Gulf Energy Development and Demco Public 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.