Correlation Between MV Oil and Tullow Oil

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

By analyzing existing cross correlation between MV Oil Trust and Tullow Oil plc, you can compare the effects of market volatilities on MV Oil and Tullow Oil 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 MV Oil with a short position of Tullow Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of MV Oil and Tullow Oil.

Diversification Opportunities for MV Oil and Tullow Oil

0.74

Correlation Coefficient

MV Oil  Tullow Oil

Poor diversification

The 3 months correlation between MVO and Tullow is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding MV Oil Trust and Tullow Oil plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tullow Oil plc and MV 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 MV Oil Trust are associated (or correlated) with Tullow Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tullow Oil plc has no effect on the direction of MV Oil i.e., MV Oil and Tullow Oil go up and down completely randomly.

Pair Corralation between MV Oil and Tullow Oil

Considering the 90-day investment horizon MV Oil Trust is expected to under-perform the Tullow Oil. But the stock apears to be less risky and, when comparing its historical volatility, MV Oil Trust is 1.43 times less risky than Tullow Oil. The stock trades about -0.13 of its potential returns per unit of risk. The Tullow Oil plc is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  28.00  in Tullow Oil plc on December 24, 2024 and sell it today you would lose (7.00) from holding Tullow Oil plc or give up 25.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

MV Oil Trust  vs.  Tullow Oil plc

MV Oil Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days MV Oil Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Tullow Oil plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tullow Oil plc 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 essential indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with MV Oil and Tullow Oil

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

The idea behind MV Oil Trust and Tullow Oil plc 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.