Correlation Between International Petroleum and Prospera Energy

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

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

Diversification Opportunities for International Petroleum and Prospera Energy

0.81

Correlation Coefficient

International Petroleum  Prospera Energy

Very poor diversification

The 3 months correlation between International and Prospera is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding International Petroleum and Prospera Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prospera Energy and International Petroleum 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 International Petroleum are associated (or correlated) with Prospera Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prospera Energy has no effect on the direction of International Petroleum i.e., International Petroleum and Prospera Energy go up and down completely randomly.

Pair Corralation between International Petroleum and Prospera Energy

Assuming the 90 days horizon International Petroleum is expected to generate 0.3 times more return on investment than Prospera Energy. However, International Petroleum is 3.33 times less risky than Prospera Energy. It trades about -0.07 of its potential returns per unit of risk. Prospera Energy is currently generating about -0.12 per unit of risk. If you would invest  1,230  in International Petroleum on September 13, 2024 and sell it today you would lose (128.00) from holding International Petroleum or give up 10.41% of portfolio value over 90 days.

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

International Petroleum  vs.  Prospera Energy

International Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

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

Prospera Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prospera Energy 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 technical and fundamental 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 International Petroleum and Prospera Energy

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

The idea behind International Petroleum and Prospera Energy 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.