Correlation Between Northern Oil and Magnolia Oil

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

Diversification Opportunities for Northern Oil and Magnolia Oil

0.79

Correlation Coefficient

Northern Oil  Magnolia Oil

Poor diversification

The 3 months correlation between Northern and Magnolia is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Northern Oil Gas and Magnolia Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magnolia Oil Gas 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 Magnolia Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magnolia Oil Gas has no effect on the direction of Northern Oil i.e., Northern Oil and Magnolia Oil go up and down completely randomly.

Pair Corralation between Northern Oil and Magnolia Oil

Considering the 90-day investment horizon Northern Oil Gas is expected to generate 1.22 times more return on investment than Magnolia Oil. However, Northern Oil is 1.22 times more volatile than Magnolia Oil Gas. It trades about 0.02 of its potential returns per unit of risk. Magnolia Oil Gas is currently generating about -0.06 per unit of risk. If you would invest  3,878  in Northern Oil Gas on October 10, 2024 and sell it today you would earn a total of  62.00  from holding Northern Oil Gas or generate 1.6% return on investment over 90 days.

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

Northern Oil Gas  vs.  Magnolia Oil Gas

Northern Oil Gas

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Oil Gas are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Northern Oil is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

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.

Pair Trading with Northern Oil and Magnolia Oil

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

The idea behind Northern Oil Gas and Magnolia Oil Gas 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.