Correlation Between Profire Ene and Natural Gas

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

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

Diversification Opportunities for Profire Ene and Natural Gas

0.79

Correlation Coefficient

Profire Ene  Natural Gas

Poor diversification

The 3 months correlation between Profire and Natural is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Profire Ene and Natural Gas Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Gas Services and Profire Ene 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 Profire Ene are associated (or correlated) with Natural Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Gas Services has no effect on the direction of Profire Ene i.e., Profire Ene and Natural Gas go up and down completely randomly.

Pair Corralation between Profire Ene and Natural Gas

Given the investment horizon of 90 days Profire Ene is expected to generate 2.2 times more return on investment than Natural Gas. However, Profire Ene is 2.2 times more volatile than Natural Gas Services. It trades about 0.17 of its potential returns per unit of risk. Natural Gas Services is currently generating about 0.21 per unit of risk. If you would invest  147.00  in Profire Ene on September 13, 2024 and sell it today you would earn a total of  108.00  from holding Profire Ene or generate 73.47% return on investment over 90 days.

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

Profire Ene  vs.  Natural Gas Services

Profire Ene

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Profire Ene are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal forward indicators, Profire Ene exhibited solid returns over the last few months and may actually be approaching a breakup point.

Natural Gas Services

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Gas Services are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Natural Gas unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Profire Ene and Natural Gas

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

The idea behind Profire Ene and Natural Gas Services 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.