Correlation Between Pantheon Resources and Sky Petroleum

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

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

Diversification Opportunities for Pantheon Resources and Sky Petroleum

-0.03

Correlation Coefficient

Pantheon Resources  Sky Petroleum

Good diversification

The 3 months correlation between Pantheon and Sky is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Pantheon Resources Plc and Sky Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sky Petroleum and Pantheon 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 Pantheon Resources Plc are associated (or correlated) with Sky Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sky Petroleum has no effect on the direction of Pantheon Resources i.e., Pantheon Resources and Sky Petroleum go up and down completely randomly.

Pair Corralation between Pantheon Resources and Sky Petroleum

Assuming the 90 days horizon Pantheon Resources is expected to generate 72.59 times less return on investment than Sky Petroleum. But when comparing it to its historical volatility, Pantheon Resources Plc is 26.39 times less risky than Sky Petroleum. It trades about 0.05 of its potential returns per unit of risk. Sky Petroleum is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  7.00  in Sky Petroleum on September 26, 2024 and sell it today you would lose (6.98) from holding Sky Petroleum or give up 99.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Pantheon Resources Plc  vs.  Sky Petroleum

Pantheon Resources Plc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pantheon Resources Plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Pantheon Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Sky Petroleum

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sky Petroleum are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Sky Petroleum demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pantheon Resources and Sky Petroleum

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

The idea behind Pantheon Resources Plc and Sky Petroleum 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.