Correlation Between Mari Petroleum and National Foods

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

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

Diversification Opportunities for Mari Petroleum and National Foods

0.7

Correlation Coefficient

Mari Petroleum  National Foods

Poor diversification

The 3 months correlation between Mari and National is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Mari Petroleum and National Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Foods and Mari 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 Mari Petroleum are associated (or correlated) with National Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Foods has no effect on the direction of Mari Petroleum i.e., Mari Petroleum and National Foods go up and down completely randomly.

Pair Corralation between Mari Petroleum and National Foods

Assuming the 90 days trading horizon Mari Petroleum is expected to generate 2.2 times more return on investment than National Foods. However, Mari Petroleum is 2.2 times more volatile than National Foods. It trades about 0.3 of its potential returns per unit of risk. National Foods is currently generating about 0.12 per unit of risk. If you would invest  37,809  in Mari Petroleum on September 13, 2024 and sell it today you would earn a total of  32,205  from holding Mari Petroleum or generate 85.18% return on investment over 90 days.

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

Mari Petroleum  vs.  National Foods

Mari Petroleum

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mari Petroleum are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mari Petroleum sustained solid returns over the last few months and may actually be approaching a breakup point.

National Foods

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Foods are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, National Foods may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Mari Petroleum and National Foods

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

The idea behind Mari Petroleum and National Foods 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.