Correlation Between Rockhopper Exploration and Tullow Oil

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

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

Diversification Opportunities for Rockhopper Exploration and Tullow Oil

-0.31

Correlation Coefficient

Rockhopper Exploration  Tullow Oil

Very good diversification

The 3 months correlation between Rockhopper and Tullow is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Rockhopper Exploration plc and Tullow Oil plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tullow Oil plc and Rockhopper Exploration 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 Rockhopper Exploration plc are associated (or correlated) with Tullow Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tullow Oil plc has no effect on the direction of Rockhopper Exploration i.e., Rockhopper Exploration and Tullow Oil go up and down completely randomly.

Pair Corralation between Rockhopper Exploration and Tullow Oil

Assuming the 90 days horizon Rockhopper Exploration plc is expected to generate 0.98 times more return on investment than Tullow Oil. However, Rockhopper Exploration plc is 1.02 times less risky than Tullow Oil. It trades about 0.09 of its potential returns per unit of risk. Tullow Oil plc is currently generating about -0.01 per unit of risk. If you would invest  14.00  in Rockhopper Exploration plc on October 2, 2024 and sell it today you would earn a total of  19.00  from holding Rockhopper Exploration plc or generate 135.71% return on investment over 90 days.

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

Rockhopper Exploration plc  vs.  Tullow Oil plc

Rockhopper Exploration

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rockhopper Exploration plc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, Rockhopper Exploration reported solid returns over the last few months and may actually be approaching a breakup point.

Tullow Oil plc

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tullow Oil plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, Tullow Oil may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Rockhopper Exploration and Tullow Oil

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

The idea behind Rockhopper Exploration plc and Tullow Oil plc 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.