Correlation Between Oracle and Vanguard Energy

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

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

Diversification Opportunities for Oracle and Vanguard Energy

0.71

Correlation Coefficient

Oracle  Vanguard Energy

Poor diversification

The 3 months correlation between Oracle and Vanguard is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Oracle and Vanguard Energy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Energy and Oracle 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 Oracle are associated (or correlated) with Vanguard Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Energy has no effect on the direction of Oracle i.e., Oracle and Vanguard Energy go up and down completely randomly.

Pair Corralation between Oracle and Vanguard Energy

Given the investment horizon of 90 days Oracle is expected to generate 2.0 times more return on investment than Vanguard Energy. However, Oracle is 2.0 times more volatile than Vanguard Energy Fund. It trades about -0.03 of its potential returns per unit of risk. Vanguard Energy Fund is currently generating about -0.11 per unit of risk. If you would invest  18,094  in Oracle on December 2, 2024 and sell it today you would lose (1,488) from holding Oracle or give up 8.22% of portfolio value over 90 days.

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

Oracle  vs.  Vanguard Energy Fund

Oracle

Risk-Adjusted Performance

Very Weak

Over the last 90 days Oracle has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Oracle is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Vanguard Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Energy Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Oracle and Vanguard Energy

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

The idea behind Oracle and Vanguard Energy Fund 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.