Correlation Between Index International and Sea Oil

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

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

Diversification Opportunities for Index International and Sea Oil

0.2

Correlation Coefficient

Index International  Sea Oil

Modest diversification

The 3 months correlation between Index and Sea is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Index International Group and Sea Oil Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea Oil Public and Index International 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 Index International Group are associated (or correlated) with Sea Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea Oil Public has no effect on the direction of Index International i.e., Index International and Sea Oil go up and down completely randomly.

Pair Corralation between Index International and Sea Oil

Assuming the 90 days trading horizon Index International Group is expected to under-perform the Sea Oil. In addition to that, Index International is 1.41 times more volatile than Sea Oil Public. It trades about -0.1 of its total potential returns per unit of risk. Sea Oil Public is currently generating about -0.09 per unit of volatility. If you would invest  262.00  in Sea Oil Public on October 10, 2024 and sell it today you would lose (4.00) from holding Sea Oil Public or give up 1.53% of portfolio value over 90 days.

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

Index International Group  vs.  Sea Oil Public

Index International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Index International Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Index International is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Sea Oil Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sea Oil Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sea Oil is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Index International and Sea Oil

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

The idea behind Index International Group and Sea Oil Public 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.