Correlation Between PetroShale and Horizon Oil

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

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

Diversification Opportunities for PetroShale and Horizon Oil

-0.06

Correlation Coefficient

PetroShale  Horizon Oil

Good diversification

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

Pair Corralation between PetroShale and Horizon Oil

Assuming the 90 days horizon PetroShale is expected to under-perform the Horizon Oil. But the otc stock apears to be less risky and, when comparing its historical volatility, PetroShale is 2.72 times less risky than Horizon Oil. The otc stock trades about -0.2 of its potential returns per unit of risk. The Horizon Oil Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  14.00  in Horizon Oil Limited on September 3, 2024 and sell it today you would lose (1.00) from holding Horizon Oil Limited or give up 7.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

PetroShale  vs.  Horizon Oil Limited

PetroShale

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PetroShale has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Horizon Oil Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Horizon Oil Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Horizon Oil may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with PetroShale and Horizon Oil

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

The idea behind PetroShale and Horizon Oil Limited 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.