Correlation Between Gear Energy and InPlay Oil

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

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

Diversification Opportunities for Gear Energy and InPlay Oil

0.79

Correlation Coefficient

Gear Energy  InPlay Oil

Poor diversification

The 3 months correlation between Gear and InPlay is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Gear Energy and InPlay Oil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InPlay Oil Corp and Gear 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 Gear Energy are associated (or correlated) with InPlay Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InPlay Oil Corp has no effect on the direction of Gear Energy i.e., Gear Energy and InPlay Oil go up and down completely randomly.

Pair Corralation between Gear Energy and InPlay Oil

Assuming the 90 days trading horizon Gear Energy is expected to generate 1.62 times more return on investment than InPlay Oil. However, Gear Energy is 1.62 times more volatile than InPlay Oil Corp. It trades about -0.02 of its potential returns per unit of risk. InPlay Oil Corp is currently generating about -0.05 per unit of risk. If you would invest  51.00  in Gear Energy on September 12, 2024 and sell it today you would lose (1.00) from holding Gear Energy or give up 1.96% of portfolio value over 90 days.

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

Gear Energy  vs.  InPlay Oil Corp

Gear Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gear Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

InPlay Oil Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days InPlay Oil Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Gear Energy and InPlay Oil

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

The idea behind Gear Energy and InPlay Oil Corp 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.