Correlation Between Marathon Oil and Petro Rio

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

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

Diversification Opportunities for Marathon Oil and Petro Rio

-0.26

Correlation Coefficient

Marathon Oil  Petro Rio

Very good diversification

The 3 months correlation between Marathon and Petro is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Marathon Oil and Petro Rio SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petro Rio SA and Marathon 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 Marathon Oil are associated (or correlated) with Petro Rio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petro Rio SA has no effect on the direction of Marathon Oil i.e., Marathon Oil and Petro Rio go up and down completely randomly.

Pair Corralation between Marathon Oil and Petro Rio

Assuming the 90 days trading horizon Marathon Oil is expected to generate 1.11 times more return on investment than Petro Rio. However, Marathon Oil is 1.11 times more volatile than Petro Rio SA. It trades about 0.14 of its potential returns per unit of risk. Petro Rio SA is currently generating about -0.03 per unit of risk. If you would invest  14,976  in Marathon Oil on September 17, 2024 and sell it today you would earn a total of  2,039  from holding Marathon Oil or generate 13.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	74.6%
Values	Daily Returns

Marathon Oil  vs.  Petro Rio SA

Marathon Oil

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Marathon Oil has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Marathon Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Petro Rio SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petro Rio SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Petro Rio is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Marathon Oil and Petro Rio

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

The idea behind Marathon Oil and Petro Rio SA 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.