Correlation Between Gulf Resources and Energy

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

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

Diversification Opportunities for Gulf Resources and Energy

-0.09

Correlation Coefficient

Gulf Resources  Energy

Good diversification

The 3 months correlation between Gulf and Energy is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Gulf Resources and Energy and Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy and Environmental and Gulf Resources 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 Resources are associated (or correlated) with Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy and Environmental has no effect on the direction of Gulf Resources i.e., Gulf Resources and Energy go up and down completely randomly.

Pair Corralation between Gulf Resources and Energy

Given the investment horizon of 90 days Gulf Resources is expected to under-perform the Energy. But the stock apears to be less risky and, when comparing its historical volatility, Gulf Resources is 1.86 times less risky than Energy. The stock trades about -0.06 of its potential returns per unit of risk. The Energy and Environmental is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  18.00  in Energy and Environmental on September 4, 2024 and sell it today you would lose (10.00) from holding Energy and Environmental or give up 55.56% of portfolio value over 90 days.

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

Gulf Resources  vs.  Energy and Environmental

Gulf Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gulf Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Energy and Environmental

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Energy and Environmental are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gulf Resources and Energy

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

The idea behind Gulf Resources and Energy and Environmental 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.