Correlation Between MDM Permian and International Petroleum

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

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

Diversification Opportunities for MDM Permian and International Petroleum

0.4

Correlation Coefficient

MDM Permian  International Petroleum

Very weak diversification

The 3 months correlation between MDM and International is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding MDM Permian and International Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Petroleum and MDM Permian 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 MDM Permian are associated (or correlated) with International Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Petroleum has no effect on the direction of MDM Permian i.e., MDM Permian and International Petroleum go up and down completely randomly.

Pair Corralation between MDM Permian and International Petroleum

Given the investment horizon of 90 days MDM Permian is expected to generate 4.92 times more return on investment than International Petroleum. However, MDM Permian is 4.92 times more volatile than International Petroleum. It trades about 0.14 of its potential returns per unit of risk. International Petroleum is currently generating about 0.26 per unit of risk. If you would invest  0.70  in MDM Permian on December 27, 2024 and sell it today you would earn a total of  0.50  from holding MDM Permian or generate 71.43% return on investment over 90 days.

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

MDM Permian  vs.  International Petroleum

MDM Permian

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MDM Permian are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile primary indicators, MDM Permian reported solid returns over the last few months and may actually be approaching a breakup point.

International Petroleum

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in International Petroleum are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, International Petroleum reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MDM Permian and International Petroleum

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

The idea behind MDM Permian and International Petroleum 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.