Correlation Between Northern Oil and Vaalco Energy

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

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

Diversification Opportunities for Northern Oil and Vaalco Energy

0.84

Correlation Coefficient

Northern Oil  Vaalco Energy

Very poor diversification

The 3 months correlation between Northern and Vaalco is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Northern Oil Gas and Vaalco Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vaalco Energy and Northern 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 Northern Oil Gas are associated (or correlated) with Vaalco Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vaalco Energy has no effect on the direction of Northern Oil i.e., Northern Oil and Vaalco Energy go up and down completely randomly.

Pair Corralation between Northern Oil and Vaalco Energy

Considering the 90-day investment horizon Northern Oil Gas is expected to under-perform the Vaalco Energy. But the stock apears to be less risky and, when comparing its historical volatility, Northern Oil Gas is 1.2 times less risky than Vaalco Energy. The stock trades about -0.11 of its potential returns per unit of risk. The Vaalco Energy is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  418.00  in Vaalco Energy on December 29, 2024 and sell it today you would lose (26.00) from holding Vaalco Energy or give up 6.22% of portfolio value over 90 days.

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

Northern Oil Gas  vs.  Vaalco Energy

Northern Oil Gas

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic 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.

Vaalco Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vaalco Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Vaalco Energy is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Northern Oil and Vaalco Energy

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

The idea behind Northern Oil Gas and Vaalco Energy 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.