Correlation Between INDIKA ENERGY and Evolution Petroleum

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

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

Diversification Opportunities for INDIKA ENERGY and Evolution Petroleum

0.84

Correlation Coefficient

INDIKA ENERGY  Evolution Petroleum

Very poor diversification

The 3 months correlation between INDIKA and Evolution is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding INDIKA ENERGY and Evolution Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution Petroleum and INDIKA 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 INDIKA ENERGY are associated (or correlated) with Evolution Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution Petroleum has no effect on the direction of INDIKA ENERGY i.e., INDIKA ENERGY and Evolution Petroleum go up and down completely randomly.

Pair Corralation between INDIKA ENERGY and Evolution Petroleum

Assuming the 90 days trading horizon INDIKA ENERGY is expected to under-perform the Evolution Petroleum. In addition to that, INDIKA ENERGY is 3.66 times more volatile than Evolution Petroleum. It trades about -0.02 of its total potential returns per unit of risk. Evolution Petroleum is currently generating about 0.01 per unit of volatility. If you would invest  453.00  in Evolution Petroleum on December 23, 2024 and sell it today you would earn a total of  3.00  from holding Evolution Petroleum or generate 0.66% return on investment over 90 days.

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

INDIKA ENERGY  vs.  Evolution Petroleum

INDIKA ENERGY

Risk-Adjusted Performance

Very Weak

Over the last 90 days INDIKA ENERGY has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Evolution Petroleum

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution Petroleum are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Evolution Petroleum is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with INDIKA ENERGY and Evolution Petroleum

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

The idea behind INDIKA ENERGY and Evolution Petroleum 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.