Correlation Between National Energy and Natural Gas

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

By analyzing existing cross correlation between National Energy Services and Natural Gas Services, you can compare the effects of market volatilities on National Energy and Natural Gas 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 National Energy with a short position of Natural Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Energy and Natural Gas.

Diversification Opportunities for National Energy and Natural Gas

-0.68

Correlation Coefficient

National Energy  Natural Gas

Excellent diversification

The 3 months correlation between National and Natural is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding National Energy Services and Natural Gas Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Gas Services and National 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 National Energy Services are associated (or correlated) with Natural Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Gas Services has no effect on the direction of National Energy i.e., National Energy and Natural Gas go up and down completely randomly.

Pair Corralation between National Energy and Natural Gas

Given the investment horizon of 90 days National Energy Services is expected to under-perform the Natural Gas. But the stock apears to be less risky and, when comparing its historical volatility, National Energy Services is 1.02 times less risky than Natural Gas. The stock trades about -0.01 of its potential returns per unit of risk. The Natural Gas Services is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,922  in Natural Gas Services on September 12, 2024 and sell it today you would earn a total of  843.00  from holding Natural Gas Services or generate 43.86% return on investment over 90 days.

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

National Energy Services  vs.  Natural Gas Services

National Energy Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, National Energy is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Natural Gas Services

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Gas Services are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Natural Gas unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Energy and Natural Gas

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

The idea behind National Energy Services and Natural Gas Services 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.