Correlation Between Melbana Energy and Gulf Keystone

Can any of the company-specific risk be diversified away by investing in both Melbana Energy and Gulf Keystone 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 Gulf Keystone 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 Gulf Keystone Petroleum, you can compare the effects of market volatilities on Melbana Energy and Gulf Keystone 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 Gulf Keystone. Check out your portfolio center. Please also check ongoing floating volatility patterns of Melbana Energy and Gulf Keystone.

Diversification Opportunities for Melbana Energy and Gulf Keystone

-0.2

Correlation Coefficient

Melbana Energy  Gulf Keystone

Good diversification

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

Pair Corralation between Melbana Energy and Gulf Keystone

Assuming the 90 days horizon Melbana Energy Limited is expected to under-perform the Gulf Keystone. In addition to that, Melbana Energy is 3.33 times more volatile than Gulf Keystone Petroleum. It trades about -0.22 of its total potential returns per unit of risk. Gulf Keystone Petroleum is currently generating about 0.07 per unit of volatility. If you would invest  171.00  in Gulf Keystone Petroleum on October 9, 2024 and sell it today you would earn a total of  15.00  from holding Gulf Keystone Petroleum or generate 8.77% return on investment over 90 days.

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

Melbana Energy Limited  vs.  Gulf Keystone Petroleum

Melbana Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Melbana Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Gulf Keystone Petroleum

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Keystone Petroleum are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Gulf Keystone may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Melbana Energy and Gulf Keystone

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

The idea behind Melbana Energy Limited and Gulf Keystone 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.