Correlation Between Packages and Oil

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

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

Diversification Opportunities for Packages and Oil

0.06

Correlation Coefficient

Packages  Oil

Significant diversification

The 3 months correlation between Packages and Oil is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Packages and Oil and Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil and Gas and Packages 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 Packages are associated (or correlated) with Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil and Gas has no effect on the direction of Packages i.e., Packages and Oil go up and down completely randomly.

Pair Corralation between Packages and Oil

Assuming the 90 days trading horizon Packages is expected to under-perform the Oil. But the stock apears to be less risky and, when comparing its historical volatility, Packages is 1.12 times less risky than Oil. The stock trades about -0.04 of its potential returns per unit of risk. The Oil and Gas is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  19,187  in Oil and Gas on December 3, 2024 and sell it today you would earn a total of  1,989  from holding Oil and Gas or generate 10.37% return on investment over 90 days.

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

Packages  vs.  Oil and Gas

Packages

Risk-Adjusted Performance

Very Weak

Over the last 90 days Packages has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Packages is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Oil and Gas

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Oil and Gas are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Oil may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Packages and Oil

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

The idea behind Packages and Oil and Gas 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.