Correlation Between PetroShale and Kelt Exploration

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

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

Diversification Opportunities for PetroShale and Kelt Exploration

0.13

Correlation Coefficient

PetroShale  Kelt Exploration

Average diversification

The 3 months correlation between PetroShale and Kelt is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding PetroShale and Kelt Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kelt Exploration 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 Kelt Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kelt Exploration has no effect on the direction of PetroShale i.e., PetroShale and Kelt Exploration go up and down completely randomly.

Pair Corralation between PetroShale and Kelt Exploration

Assuming the 90 days horizon PetroShale is expected to generate 1.04 times more return on investment than Kelt Exploration. However, PetroShale is 1.04 times more volatile than Kelt Exploration. It trades about 0.01 of its potential returns per unit of risk. Kelt Exploration is currently generating about -0.18 per unit of risk. If you would invest  31.00  in PetroShale on November 29, 2024 and sell it today you would earn a total of  0.00  from holding PetroShale or generate 0.0% return on investment over 90 days.

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

PetroShale  vs.  Kelt Exploration

PetroShale

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PetroShale are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, PetroShale reported solid returns over the last few months and may actually be approaching a breakup point.

Kelt Exploration

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kelt Exploration 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 basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with PetroShale and Kelt Exploration

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

The idea behind PetroShale and Kelt 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.

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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.