Correlation Between Natural Resource and Geo Energy

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

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

Diversification Opportunities for Natural Resource and Geo Energy

0.35

Correlation Coefficient

Natural Resource  Geo Energy

Weak diversification

The 3 months correlation between Natural and Geo is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Natural Resource Partners and Geo Energy Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Geo Energy Resources and Natural Resource 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 Resource Partners are associated (or correlated) with Geo Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Geo Energy Resources has no effect on the direction of Natural Resource i.e., Natural Resource and Geo Energy go up and down completely randomly.

Pair Corralation between Natural Resource and Geo Energy

Considering the 90-day investment horizon Natural Resource is expected to generate 19.48 times less return on investment than Geo Energy. But when comparing it to its historical volatility, Natural Resource Partners is 1.06 times less risky than Geo Energy. It trades about 0.01 of its potential returns per unit of risk. Geo Energy Resources is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  17.00  in Geo Energy Resources on December 28, 2024 and sell it today you would earn a total of  6.00  from holding Geo Energy Resources or generate 35.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Natural Resource Partners  vs.  Geo Energy Resources

Natural Resource Partners

Risk-Adjusted Performance

Very Weak

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

Geo Energy Resources

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Geo Energy Resources are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Geo Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Natural Resource and Geo Energy

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

The idea behind Natural Resource Partners and Geo Energy Resources 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.

Check out your portfolio center.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.