Correlation Between Magnolia Oil and GeoPark

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

Diversification Opportunities for Magnolia Oil and GeoPark

-0.2

Correlation Coefficient

Magnolia Oil  GeoPark

Good diversification

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

Pair Corralation between Magnolia Oil and GeoPark

Considering the 90-day investment horizon Magnolia Oil Gas is expected to generate 0.32 times more return on investment than GeoPark. However, Magnolia Oil Gas is 3.11 times less risky than GeoPark. It trades about 0.38 of its potential returns per unit of risk. GeoPark is currently generating about 0.1 per unit of risk. If you would invest  2,312  in Magnolia Oil Gas on October 27, 2024 and sell it today you would earn a total of  224.00  from holding Magnolia Oil Gas or generate 9.69% return on investment over 90 days.

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

Magnolia Oil Gas  vs.  GeoPark

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 fairly strong technical and fundamental indicators, Magnolia Oil is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

GeoPark

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GeoPark are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, GeoPark disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Magnolia Oil and GeoPark

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

The idea behind Magnolia Oil Gas and GeoPark 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.