Correlation Between Horizon Oil and Tullow Oil

Can any of the company-specific risk be diversified away by investing in both Horizon Oil and Tullow 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 Horizon Oil and Tullow Oil 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 Tullow Oil plc, you can compare the effects of market volatilities on Horizon Oil and Tullow 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 Horizon Oil with a short position of Tullow Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Horizon Oil and Tullow Oil.

Diversification Opportunities for Horizon Oil and Tullow Oil

-0.13

Correlation Coefficient

Horizon Oil  Tullow Oil

Good diversification

The 3 months correlation between Horizon and Tullow is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Horizon Oil Limited and Tullow Oil plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tullow Oil plc 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 Tullow Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tullow Oil plc has no effect on the direction of Horizon Oil i.e., Horizon Oil and Tullow Oil go up and down completely randomly.

Pair Corralation between Horizon Oil and Tullow Oil

Assuming the 90 days horizon Horizon Oil Limited is expected to generate 1.75 times more return on investment than Tullow Oil. However, Horizon Oil is 1.75 times more volatile than Tullow Oil plc. It trades about 0.12 of its potential returns per unit of risk. Tullow Oil plc is currently generating about -0.02 per unit of risk. If you would invest  10.00  in Horizon Oil Limited on December 29, 2024 and sell it today you would earn a total of  5.00  from holding Horizon Oil Limited or generate 50.0% return on investment over 90 days.

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

Horizon Oil Limited  vs.  Tullow Oil plc

Horizon Oil Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Horizon Oil Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Horizon Oil reported solid returns over the last few months and may actually be approaching a breakup point.

Tullow Oil plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tullow Oil plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Horizon Oil and Tullow Oil

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

The idea behind Horizon Oil Limited and Tullow Oil plc 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.