Correlation Between Oil Natural and Heritage Foods

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

Diversification Opportunities for Oil Natural and Heritage Foods

0.9

Correlation Coefficient

Oil Natural  Heritage Foods

Almost no diversification

The 3 months correlation between Oil and Heritage is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Oil Natural Gas and Heritage Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Foods 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 Heritage Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Foods has no effect on the direction of Oil Natural i.e., Oil Natural and Heritage Foods go up and down completely randomly.

Pair Corralation between Oil Natural and Heritage Foods

Assuming the 90 days trading horizon Oil Natural Gas is expected to under-perform the Heritage Foods. But the stock apears to be less risky and, when comparing its historical volatility, Oil Natural Gas is 1.5 times less risky than Heritage Foods. The stock trades about -0.27 of its potential returns per unit of risk. The Heritage Foods Limited is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  47,865  in Heritage Foods Limited on September 27, 2024 and sell it today you would lose (560.00) from holding Heritage Foods Limited or give up 1.17% of portfolio value over 90 days.

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

Oil Natural Gas  vs.  Heritage Foods Limited

Oil Natural Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oil Natural Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Heritage Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heritage Foods Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Oil Natural and Heritage Foods

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

The idea behind Oil Natural Gas and Heritage Foods 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.