Correlation Between MDM Permian and Otto Energy

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

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

Diversification Opportunities for MDM Permian and Otto Energy

-0.03

Correlation Coefficient

MDM Permian  Otto Energy

Good diversification

The 3 months correlation between MDM and Otto is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding MDM Permian and Otto Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otto Energy Limited 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 Otto Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otto Energy Limited has no effect on the direction of MDM Permian i.e., MDM Permian and Otto Energy go up and down completely randomly.

Pair Corralation between MDM Permian and Otto Energy

Given the investment horizon of 90 days MDM Permian is expected to generate 0.75 times more return on investment than Otto Energy. However, MDM Permian is 1.33 times less risky than Otto Energy. It trades about 0.08 of its potential returns per unit of risk. Otto Energy Limited is currently generating about -0.21 per unit of risk. If you would invest  0.80  in MDM Permian on September 5, 2024 and sell it today you would earn a total of  0.06  from holding MDM Permian or generate 7.5% return on investment over 90 days.

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

MDM Permian  vs.  Otto Energy Limited

MDM Permian

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MDM Permian are ranked lower than 5 (%) 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.

Otto Energy Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Otto Energy Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Otto Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MDM Permian and Otto Energy

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

The idea behind MDM Permian and Otto Energy Limited 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.

Check out your portfolio center.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.