Correlation Between Oil and Gatron Industries

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

Diversification Opportunities for Oil and Gatron Industries

-0.86

Correlation Coefficient

Oil  Gatron Industries

Pay attention - limited upside

The 3 months correlation between Oil and Gatron is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Oil and Gas and Gatron Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gatron Industries 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 Gatron Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gatron Industries has no effect on the direction of Oil i.e., Oil and Gatron Industries go up and down completely randomly.

Pair Corralation between Oil and Gatron Industries

Assuming the 90 days trading horizon Oil and Gas is expected to generate 0.87 times more return on investment than Gatron Industries. However, Oil and Gas is 1.15 times less risky than Gatron Industries. It trades about 0.11 of its potential returns per unit of risk. Gatron Industries is currently generating about -0.01 per unit of risk. If you would invest  8,569  in Oil and Gas on September 12, 2024 and sell it today you would earn a total of  10,807  from holding Oil and Gas or generate 126.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	83.28%
Values	Daily Returns

Oil and Gas  vs.  Gatron Industries

Oil and Gas

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Oil and Gas are ranked lower than 21 (%) 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.

Gatron Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gatron Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Gatron Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Oil and Gatron Industries

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

The idea behind Oil and Gas and Gatron Industries 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.