Correlation Between Pine Cliff and Touchstone Exploration

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

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

Diversification Opportunities for Pine Cliff and Touchstone Exploration

0.56

Correlation Coefficient

Pine Cliff  Touchstone Exploration

Very weak diversification

The 3 months correlation between Pine and Touchstone is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Pine Cliff Energy and Touchstone Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchstone Exploration and Pine Cliff 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 Pine Cliff Energy are associated (or correlated) with Touchstone Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Touchstone Exploration has no effect on the direction of Pine Cliff i.e., Pine Cliff and Touchstone Exploration go up and down completely randomly.

Pair Corralation between Pine Cliff and Touchstone Exploration

Assuming the 90 days trading horizon Pine Cliff Energy is expected to under-perform the Touchstone Exploration. But the stock apears to be less risky and, when comparing its historical volatility, Pine Cliff Energy is 1.78 times less risky than Touchstone Exploration. The stock trades about -0.2 of its potential returns per unit of risk. The Touchstone Exploration is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  42.00  in Touchstone Exploration on December 4, 2024 and sell it today you would lose (3.00) from holding Touchstone Exploration or give up 7.14% of portfolio value over 90 days.

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

Pine Cliff Energy  vs.  Touchstone Exploration

Pine Cliff Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pine Cliff Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Touchstone Exploration

Risk-Adjusted Performance

Very Weak

Over the last 90 days Touchstone Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Pine Cliff and Touchstone Exploration

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

The idea behind Pine Cliff Energy and Touchstone Exploration 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.