Correlation Between Oil and Loads

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

Diversification Opportunities for Oil and Loads

-0.15

Correlation Coefficient

Oil  Loads

Good diversification

The 3 months correlation between Oil and Loads is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Oil and Gas and Loads in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loads 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 Loads. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Loads has no effect on the direction of Oil i.e., Oil and Loads go up and down completely randomly.

Pair Corralation between Oil and Loads

Assuming the 90 days trading horizon Oil and Gas is expected to generate 0.7 times more return on investment than Loads. However, Oil and Gas is 1.43 times less risky than Loads. It trades about 0.13 of its potential returns per unit of risk. Loads is currently generating about -0.14 per unit of risk. If you would invest  20,269  in Oil and Gas on December 4, 2024 and sell it today you would earn a total of  907.00  from holding Oil and Gas or generate 4.47% return on investment over 90 days.

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

Oil and Gas  vs.  Loads

Oil and Gas

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Oil and Gas are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Oil may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Loads

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Loads are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Loads disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Oil and Loads

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

The idea behind Oil and Gas and Loads 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.