Correlation Between Laredo Oil and Capricorn Energy

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

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

Diversification Opportunities for Laredo Oil and Capricorn Energy

-0.34

Correlation Coefficient

Laredo Oil  Capricorn Energy

Very good diversification

The 3 months correlation between Laredo and Capricorn is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Laredo Oil and Capricorn Energy PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capricorn Energy PLC and Laredo 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 Laredo Oil are associated (or correlated) with Capricorn Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capricorn Energy PLC has no effect on the direction of Laredo Oil i.e., Laredo Oil and Capricorn Energy go up and down completely randomly.

Pair Corralation between Laredo Oil and Capricorn Energy

Given the investment horizon of 90 days Laredo Oil is expected to generate 1.02 times more return on investment than Capricorn Energy. However, Laredo Oil is 1.02 times more volatile than Capricorn Energy PLC. It trades about 0.06 of its potential returns per unit of risk. Capricorn Energy PLC is currently generating about 0.01 per unit of risk. If you would invest  31.00  in Laredo Oil on December 30, 2024 and sell it today you would earn a total of  4.00  from holding Laredo Oil or generate 12.9% return on investment over 90 days.

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

Laredo Oil  vs.  Capricorn Energy PLC

Laredo Oil

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Laredo Oil are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, Laredo Oil exhibited solid returns over the last few months and may actually be approaching a breakup point.

Capricorn Energy PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capricorn Energy PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Capricorn Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Laredo Oil and Capricorn Energy

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

The idea behind Laredo Oil and Capricorn Energy 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.