Correlation Between PetroShale and Magnolia Oil

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

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

Diversification Opportunities for PetroShale and Magnolia Oil

0.18

Correlation Coefficient

PetroShale  Magnolia Oil

Average diversification

The 3 months correlation between PetroShale and Magnolia is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding PetroShale and Magnolia Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magnolia Oil Gas 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 Magnolia Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magnolia Oil Gas has no effect on the direction of PetroShale i.e., PetroShale and Magnolia Oil go up and down completely randomly.

Pair Corralation between PetroShale and Magnolia Oil

Assuming the 90 days horizon PetroShale is expected to generate 1.92 times more return on investment than Magnolia Oil. However, PetroShale is 1.92 times more volatile than Magnolia Oil Gas. It trades about -0.04 of its potential returns per unit of risk. Magnolia Oil Gas is currently generating about -0.16 per unit of risk. If you would invest  32.00  in PetroShale on October 11, 2024 and sell it today you would lose (1.00) from holding PetroShale or give up 3.12% of portfolio value over 90 days.

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

PetroShale  vs.  Magnolia Oil Gas

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 latest fragile performance, the Stock's forward indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Magnolia Oil Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magnolia Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with PetroShale and Magnolia Oil

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

The idea behind PetroShale and Magnolia Oil 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.