Correlation Between Natural Gas and Tenaris SA

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

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

Diversification Opportunities for Natural Gas and Tenaris SA

0.9

Correlation Coefficient

Natural Gas  Tenaris SA

Almost no diversification

The 3 months correlation between Natural and Tenaris is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Natural Gas Services and Tenaris SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tenaris SA and Natural Gas 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 Natural Gas Services are associated (or correlated) with Tenaris SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tenaris SA has no effect on the direction of Natural Gas i.e., Natural Gas and Tenaris SA go up and down completely randomly.

Pair Corralation between Natural Gas and Tenaris SA

Considering the 90-day investment horizon Natural Gas Services is expected to generate 1.71 times more return on investment than Tenaris SA. However, Natural Gas is 1.71 times more volatile than Tenaris SA. It trades about 0.2 of its potential returns per unit of risk. Tenaris SA is currently generating about 0.24 per unit of risk. If you would invest  1,993  in Natural Gas Services on September 26, 2024 and sell it today you would earn a total of  565.00  from holding Natural Gas Services or generate 28.35% return on investment over 90 days.

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

Natural Gas Services  vs.  Tenaris SA

Natural Gas Services

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Gas Services are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, Natural Gas unveiled solid returns over the last few months and may actually be approaching a breakup point.

Tenaris SA

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tenaris SA are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Tenaris SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Natural Gas and Tenaris SA

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

The idea behind Natural Gas Services and Tenaris SA 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.