Correlation Between Horizon Oil and PetroShale

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

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

Diversification Opportunities for Horizon Oil and PetroShale

-0.15

Correlation Coefficient

Horizon Oil  PetroShale

Good diversification

The 3 months correlation between Horizon and PetroShale is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Horizon Oil Limited and PetroShale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroShale and Horizon Oil 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 Horizon Oil Limited are associated (or correlated) with PetroShale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroShale has no effect on the direction of Horizon Oil i.e., Horizon Oil and PetroShale go up and down completely randomly.

Pair Corralation between Horizon Oil and PetroShale

Assuming the 90 days horizon Horizon Oil Limited is expected to generate 2.72 times more return on investment than PetroShale. However, Horizon Oil is 2.72 times more volatile than PetroShale. It trades about 0.02 of its potential returns per unit of risk. PetroShale is currently generating about -0.2 per unit of risk. If you would invest  14.00  in Horizon Oil Limited on September 4, 2024 and sell it today you would lose (1.00) from holding Horizon Oil Limited or give up 7.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Horizon Oil Limited  vs.  PetroShale

Horizon Oil Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Horizon Oil Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Horizon Oil may actually be approaching a critical reversion point that can send shares even higher in January 2025.

PetroShale

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PetroShale has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Horizon Oil and PetroShale

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

The idea behind Horizon Oil Limited and PetroShale 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.