Correlation Between PetroShale and EnQuest PLC

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

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

Diversification Opportunities for PetroShale and EnQuest PLC

-0.16

Correlation Coefficient

PetroShale  EnQuest PLC

Good diversification

The 3 months correlation between PetroShale and EnQuest is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding PetroShale and EnQuest PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EnQuest PLC and PetroShale 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 PetroShale are associated (or correlated) with EnQuest PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EnQuest PLC has no effect on the direction of PetroShale i.e., PetroShale and EnQuest PLC go up and down completely randomly.

Pair Corralation between PetroShale and EnQuest PLC

Assuming the 90 days horizon PetroShale is expected to under-perform the EnQuest PLC. But the otc stock apears to be less risky and, when comparing its historical volatility, PetroShale is 2.05 times less risky than EnQuest PLC. The otc stock trades about -0.02 of its potential returns per unit of risk. The EnQuest PLC is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  14.00  in EnQuest PLC on December 30, 2024 and sell it today you would earn a total of  2.00  from holding EnQuest PLC or generate 14.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	77.42%
Values	Daily Returns

PetroShale  vs.  EnQuest PLC

PetroShale

Risk-Adjusted Performance

Very Weak

Over the last 90 days PetroShale has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, PetroShale is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

EnQuest PLC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EnQuest PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, EnQuest PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroShale and EnQuest PLC

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

The idea behind PetroShale and EnQuest PLC 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.