Correlation Between Quality Construction and Star Petroleum

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

By analyzing existing cross correlation between Quality Construction Products and Star Petroleum Refining, you can compare the effects of market volatilities on Quality Construction and Star 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 Quality Construction with a short position of Star Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Quality Construction and Star Petroleum.

Diversification Opportunities for Quality Construction and Star Petroleum

0.35

Correlation Coefficient

Quality Construction  Star Petroleum

Weak diversification

The 3 months correlation between Quality and Star is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Quality Construction Products and Star Petroleum Refining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Star Petroleum Refining and Quality Construction 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 Quality Construction Products are associated (or correlated) with Star Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Star Petroleum Refining has no effect on the direction of Quality Construction i.e., Quality Construction and Star Petroleum go up and down completely randomly.

Pair Corralation between Quality Construction and Star Petroleum

Assuming the 90 days trading horizon Quality Construction Products is expected to under-perform the Star Petroleum. But the stock apears to be less risky and, when comparing its historical volatility, Quality Construction Products is 1.08 times less risky than Star Petroleum. The stock trades about -0.05 of its potential returns per unit of risk. The Star Petroleum Refining is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  690.00  in Star Petroleum Refining on September 5, 2024 and sell it today you would earn a total of  20.00  from holding Star Petroleum Refining or generate 2.9% return on investment over 90 days.

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

Quality Construction Products  vs.  Star Petroleum Refining

Quality Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Quality Construction Products has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Star Petroleum Refining

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Star Petroleum Refining are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Star Petroleum is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Quality Construction and Star Petroleum

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

The idea behind Quality Construction Products and Star Petroleum Refining 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.