Correlation Between Oil and AGP

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

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

Diversification Opportunities for Oil and AGP

0.93

Correlation Coefficient

Oil  AGP

Almost no diversification

The 3 months correlation between Oil and AGP is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Oil and Gas and AGP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AGP and 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 Oil and Gas are associated (or correlated) with AGP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AGP has no effect on the direction of Oil i.e., Oil and AGP go up and down completely randomly.

Pair Corralation between Oil and AGP

Assuming the 90 days trading horizon Oil and Gas is expected to generate 0.89 times more return on investment than AGP. However, Oil and Gas is 1.12 times less risky than AGP. It trades about 0.31 of its potential returns per unit of risk. AGP is currently generating about 0.23 per unit of risk. If you would invest  13,817  in Oil and Gas on September 27, 2024 and sell it today you would earn a total of  9,196  from holding Oil and Gas or generate 66.56% return on investment over 90 days.

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

Oil and Gas  vs.  AGP

Oil and Gas

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Oil and Gas are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

AGP

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AGP are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, AGP reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Oil and AGP

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

The idea behind Oil and Gas and AGP 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 Transaction History module to view history of all your transactions and understand their impact on performance.