Correlation Between Optima Health and Diversified Energy

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

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

Diversification Opportunities for Optima Health and Diversified Energy

-0.33

Correlation Coefficient

Optima Health  Diversified Energy

Very good diversification

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

Pair Corralation between Optima Health and Diversified Energy

Assuming the 90 days trading horizon Optima Health plc is expected to under-perform the Diversified Energy. But the stock apears to be less risky and, when comparing its historical volatility, Optima Health plc is 2.95 times less risky than Diversified Energy. The stock trades about -0.36 of its potential returns per unit of risk. The Diversified Energy is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  126,300  in Diversified Energy on October 6, 2024 and sell it today you would earn a total of  13,000  from holding Diversified Energy or generate 10.29% return on investment over 90 days.

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

Optima Health plc  vs.  Diversified Energy

Optima Health plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Optima Health plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Optima Health is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Diversified Energy

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Energy are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Diversified Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Optima Health and Diversified Energy

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

The idea behind Optima Health plc and Diversified Energy 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.