Correlation Between PetroShale and Touchstone Exploration

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

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

Diversification Opportunities for PetroShale and Touchstone Exploration

0.54

Correlation Coefficient

PetroShale  Touchstone Exploration

Very weak diversification

The 3 months correlation between PetroShale and Touchstone is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding PetroShale and Touchstone Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchstone 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 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 PetroShale i.e., PetroShale and Touchstone Exploration go up and down completely randomly.

Pair Corralation between PetroShale and Touchstone Exploration

Assuming the 90 days horizon PetroShale is expected to under-perform the Touchstone Exploration. But the otc stock apears to be less risky and, when comparing its historical volatility, PetroShale is 1.36 times less risky than Touchstone Exploration. The otc stock trades about -0.2 of its potential returns per unit of risk. The Touchstone Exploration is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  44.00  in Touchstone Exploration on September 4, 2024 and sell it today you would lose (6.00) from holding Touchstone Exploration or give up 13.64% of portfolio value over 90 days.

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

PetroShale  vs.  Touchstone Exploration

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.

Touchstone Exploration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Touchstone Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with PetroShale and Touchstone Exploration

The main advantage of trading using opposite PetroShale and Touchstone Exploration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PetroShale 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 PetroShale 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.

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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.