Correlation Between Magnolia Oil and PetroShale

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

Diversification Opportunities for Magnolia Oil and PetroShale

0.18

Correlation Coefficient

Magnolia Oil  PetroShale

Average diversification

The 3 months correlation between Magnolia and PetroShale is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Magnolia Oil Gas and PetroShale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroShale 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 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 Magnolia Oil i.e., Magnolia Oil and PetroShale go up and down completely randomly.

Pair Corralation between Magnolia Oil and PetroShale

Considering the 90-day investment horizon Magnolia Oil Gas is expected to under-perform the PetroShale. But the stock apears to be less risky and, when comparing its historical volatility, Magnolia Oil Gas is 1.92 times less risky than PetroShale. The stock trades about -0.16 of its potential returns per unit of risk. The PetroShale is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  32.00  in PetroShale on October 11, 2024 and sell it today you would lose (1.00) from holding PetroShale or give up 3.12% of portfolio value over 90 days.

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

Magnolia Oil Gas  vs.  PetroShale

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.

PetroShale

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PetroShale has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's forward indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Magnolia Oil and PetroShale

The main advantage of trading using opposite Magnolia Oil and PetroShale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magnolia Oil 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 Magnolia Oil Gas 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.