Correlation Between Paz Oil and Kafrit

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

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

Diversification Opportunities for Paz Oil and Kafrit

0.49

Correlation Coefficient

Paz Oil  Kafrit

Very weak diversification

The 3 months correlation between Paz and Kafrit is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Paz Oil and Kafrit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kafrit and Paz Oil 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 Paz Oil are associated (or correlated) with Kafrit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kafrit has no effect on the direction of Paz Oil i.e., Paz Oil and Kafrit go up and down completely randomly.

Pair Corralation between Paz Oil and Kafrit

Assuming the 90 days trading horizon Paz Oil is expected to generate 0.65 times more return on investment than Kafrit. However, Paz Oil is 1.55 times less risky than Kafrit. It trades about 0.13 of its potential returns per unit of risk. Kafrit is currently generating about -0.01 per unit of risk. If you would invest  4,443,000  in Paz Oil on December 30, 2024 and sell it today you would earn a total of  582,000  from holding Paz Oil or generate 13.1% return on investment over 90 days.

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

Paz Oil  vs.  Kafrit

Paz Oil

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Paz Oil are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Paz Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Kafrit

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kafrit has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Kafrit is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Paz Oil and Kafrit

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

The idea behind Paz Oil and Kafrit 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.