Correlation Between Global Resources and Oil Gas

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

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

Diversification Opportunities for Global Resources and Oil Gas

0.62

Correlation Coefficient

Global Resources  Oil Gas

Poor diversification

The 3 months correlation between Global and Oil is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Global Resources Fund and Oil Gas Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Gas Ultrasector and Global Resources 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 Global Resources Fund are associated (or correlated) with Oil Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Gas Ultrasector has no effect on the direction of Global Resources i.e., Global Resources and Oil Gas go up and down completely randomly.

Pair Corralation between Global Resources and Oil Gas

Assuming the 90 days horizon Global Resources is expected to generate 2.92 times less return on investment than Oil Gas. But when comparing it to its historical volatility, Global Resources Fund is 1.69 times less risky than Oil Gas. It trades about 0.08 of its potential returns per unit of risk. Oil Gas Ultrasector is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,739  in Oil Gas Ultrasector on December 19, 2024 and sell it today you would earn a total of  542.00  from holding Oil Gas Ultrasector or generate 14.5% return on investment over 90 days.

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

Global Resources Fund  vs.  Oil Gas Ultrasector

Global Resources

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Global Resources Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Global Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Oil Gas Ultrasector

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Oil Gas Ultrasector are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Oil Gas showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Global Resources and Oil Gas

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

The idea behind Global Resources Fund and Oil Gas Ultrasector 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.