Correlation Between Melbana Energy and Eco (Atlantic)

Can any of the company-specific risk be diversified away by investing in both Melbana Energy and Eco (Atlantic) 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 Melbana Energy and Eco (Atlantic) into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Melbana Energy Limited and Eco Oil Gas, you can compare the effects of market volatilities on Melbana Energy and Eco (Atlantic) 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 Melbana Energy with a short position of Eco (Atlantic). Check out your portfolio center. Please also check ongoing floating volatility patterns of Melbana Energy and Eco (Atlantic).

Diversification Opportunities for Melbana Energy and Eco (Atlantic)

0.2

Correlation Coefficient

Melbana Energy  Eco (Atlantic)

Modest diversification

The 3 months correlation between Melbana and Eco is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Melbana Energy Limited and Eco Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eco (Atlantic) and Melbana Energy 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 Melbana Energy Limited are associated (or correlated) with Eco (Atlantic). Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eco (Atlantic) has no effect on the direction of Melbana Energy i.e., Melbana Energy and Eco (Atlantic) go up and down completely randomly.

Pair Corralation between Melbana Energy and Eco (Atlantic)

Assuming the 90 days horizon Melbana Energy Limited is expected to generate 2.25 times more return on investment than Eco (Atlantic). However, Melbana Energy is 2.25 times more volatile than Eco Oil Gas. It trades about 0.13 of its potential returns per unit of risk. Eco Oil Gas is currently generating about 0.01 per unit of risk. If you would invest  0.20  in Melbana Energy Limited on December 28, 2024 and sell it today you would earn a total of  0.30  from holding Melbana Energy Limited or generate 150.0% return on investment over 90 days.

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

Melbana Energy Limited  vs.  Eco Oil Gas

Melbana Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Melbana Energy Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Melbana Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Eco (Atlantic)

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eco Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Eco (Atlantic) is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Melbana Energy and Eco (Atlantic)

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

The idea behind Melbana Energy Limited and Eco Oil Gas 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.