Correlation Between NYSE Composite and Evolution Petroleum

Can any of the company-specific risk be diversified away by investing in both NYSE Composite and Evolution Petroleum 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 NYSE Composite and Evolution Petroleum into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NYSE Composite and Evolution Petroleum, you can compare the effects of market volatilities on NYSE Composite and Evolution Petroleum 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 NYSE Composite with a short position of Evolution Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Evolution Petroleum.

Diversification Opportunities for NYSE Composite and Evolution Petroleum

0.23

Correlation Coefficient

NYSE Composite  Evolution Petroleum

Modest diversification

The 3 months correlation between NYSE and Evolution is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Evolution Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution Petroleum and NYSE Composite 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 NYSE Composite are associated (or correlated) with Evolution Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution Petroleum has no effect on the direction of NYSE Composite i.e., NYSE Composite and Evolution Petroleum go up and down completely randomly.

Pair Corralation between NYSE Composite and Evolution Petroleum

Assuming the 90 days trading horizon NYSE Composite is expected to generate 2.49 times less return on investment than Evolution Petroleum. But when comparing it to its historical volatility, NYSE Composite is 1.77 times less risky than Evolution Petroleum. It trades about 0.02 of its potential returns per unit of risk. Evolution Petroleum is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  500.00  in Evolution Petroleum on December 30, 2024 and sell it today you would earn a total of  12.00  from holding Evolution Petroleum or generate 2.4% return on investment over 90 days.

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

NYSE Composite  vs.  Evolution Petroleum

Pair Trading with NYSE Composite and Evolution Petroleum

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

The idea behind NYSE Composite and Evolution Petroleum 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.