Correlation Between Oil Natural and EPL

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

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

Diversification Opportunities for Oil Natural and EPL

0.33

Correlation Coefficient

Oil Natural  EPL

Weak diversification

The 3 months correlation between Oil and EPL is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Oil Natural Gas and EPL Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EPL Limited and Oil Natural 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 Natural Gas are associated (or correlated) with EPL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EPL Limited has no effect on the direction of Oil Natural i.e., Oil Natural and EPL go up and down completely randomly.

Pair Corralation between Oil Natural and EPL

Assuming the 90 days trading horizon Oil Natural Gas is expected to generate 0.61 times more return on investment than EPL. However, Oil Natural Gas is 1.64 times less risky than EPL. It trades about 0.06 of its potential returns per unit of risk. EPL Limited is currently generating about -0.09 per unit of risk. If you would invest  22,811  in Oil Natural Gas on December 28, 2024 and sell it today you would earn a total of  1,406  from holding Oil Natural Gas or generate 6.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Oil Natural Gas  vs.  EPL Limited

Oil Natural Gas

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Oil Natural Gas are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Oil Natural may actually be approaching a critical reversion point that can send shares even higher in April 2025.

EPL Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days EPL Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Oil Natural and EPL

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

The idea behind Oil Natural Gas and EPL Limited 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.