Correlation Between Melbana Energy and PetroShale

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

Diversification Opportunities for Melbana Energy and PetroShale

0.02

Correlation Coefficient

Melbana Energy  PetroShale

Significant diversification

The 3 months correlation between Melbana and PetroShale is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Melbana Energy Limited and PetroShale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroShale 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 PetroShale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroShale has no effect on the direction of Melbana Energy i.e., Melbana Energy and PetroShale go up and down completely randomly.

Pair Corralation between Melbana Energy and PetroShale

Assuming the 90 days horizon Melbana Energy Limited is expected to generate 8.68 times more return on investment than PetroShale. However, Melbana Energy is 8.68 times more volatile than PetroShale. It trades about 0.05 of its potential returns per unit of risk. PetroShale is currently generating about -0.01 per unit of risk. If you would invest  1.20  in Melbana Energy Limited on December 23, 2024 and sell it today you would lose (0.70) from holding Melbana Energy Limited or give up 58.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	85.25%
Values	Daily Returns

Melbana Energy Limited  vs.  PetroShale

Melbana Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Melbana Energy Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Melbana Energy reported solid returns over the last few months and may actually be approaching a breakup point.

PetroShale

Risk-Adjusted Performance

Very Weak

Over the last 90 days PetroShale has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, PetroShale 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 PetroShale

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

The idea behind Melbana Energy Limited and PetroShale 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.