Correlation Between Magnolia Oil and East West

Can any of the company-specific risk be diversified away by investing in both Magnolia Oil and East West 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 Magnolia Oil and East West into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Magnolia Oil and East West

0.3

Correlation Coefficient

Magnolia Oil  East West

Weak diversification

The 3 months correlation between Magnolia and East is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Magnolia Oil Gas and East West Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East West Petroleum and Magnolia Oil 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 Magnolia Oil Gas are associated (or correlated) with East West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East West Petroleum has no effect on the direction of Magnolia Oil i.e., Magnolia Oil and East West go up and down completely randomly.

Pair Corralation between Magnolia Oil and East West

Considering the 90-day investment horizon Magnolia Oil is expected to generate 393.21 times less return on investment than East West. But when comparing it to its historical volatility, Magnolia Oil Gas is 25.79 times less risky than East West. It trades about 0.01 of its potential returns per unit of risk. East West Petroleum is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  7.00  in East West Petroleum on October 4, 2024 and sell it today you would lose (4.50) from holding East West Petroleum or give up 64.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.4%
Values	Daily Returns

Magnolia Oil Gas  vs.  East West Petroleum

Magnolia Oil Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magnolia Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

East West Petroleum

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in East West Petroleum are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, East West reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Magnolia Oil and East West

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

The idea behind Magnolia Oil Gas and East West 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.