Correlation Between InPlay Oil and PetroShale

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

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

Diversification Opportunities for InPlay Oil and PetroShale

-0.17

Correlation Coefficient

InPlay Oil  PetroShale

Good diversification

The 3 months correlation between InPlay and PetroShale is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding InPlay Oil Corp and PetroShale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroShale and InPlay 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 InPlay Oil Corp 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 InPlay Oil i.e., InPlay Oil and PetroShale go up and down completely randomly.

Pair Corralation between InPlay Oil and PetroShale

Assuming the 90 days horizon InPlay Oil Corp is expected to generate 0.89 times more return on investment than PetroShale. However, InPlay Oil Corp is 1.12 times less risky than PetroShale. It trades about -0.01 of its potential returns per unit of risk. PetroShale is currently generating about -0.02 per unit of risk. If you would invest  116.00  in InPlay Oil Corp on December 30, 2024 and sell it today you would lose (3.00) from holding InPlay Oil Corp or give up 2.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	77.42%
Values	Daily Returns

InPlay Oil Corp  vs.  PetroShale

InPlay Oil Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days InPlay Oil Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, InPlay Oil is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

PetroShale

Risk-Adjusted Performance

Very Weak

Over the last 90 days PetroShale has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, PetroShale is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with InPlay Oil and PetroShale

The main advantage of trading using opposite InPlay Oil and PetroShale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if InPlay 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 InPlay Oil Corp 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.