Correlation Between Riley Exploration and Evolution Petroleum

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

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

Diversification Opportunities for Riley Exploration and Evolution Petroleum

0.8

Correlation Coefficient

Riley Exploration  Evolution Petroleum

Very poor diversification

The 3 months correlation between Riley and Evolution is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Riley Exploration Permian and Evolution Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution Petroleum and Riley 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 Riley Exploration Permian are associated (or correlated) with Evolution Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution Petroleum has no effect on the direction of Riley Exploration i.e., Riley Exploration and Evolution Petroleum go up and down completely randomly.

Pair Corralation between Riley Exploration and Evolution Petroleum

Given the investment horizon of 90 days Riley Exploration Permian is expected to under-perform the Evolution Petroleum. In addition to that, Riley Exploration is 1.79 times more volatile than Evolution Petroleum. It trades about -0.04 of its total potential returns per unit of risk. Evolution Petroleum is currently generating about 0.03 per unit of volatility. If you would invest  500.00  in Evolution Petroleum on December 29, 2024 and sell it today you would earn a total of  12.00  from holding Evolution Petroleum or generate 2.4% return on investment over 90 days.

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

Riley Exploration Permian  vs.  Evolution Petroleum

Riley Exploration Permian

Risk-Adjusted Performance

Very Weak

Over the last 90 days Riley Exploration Permian has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Evolution Petroleum

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution Petroleum are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Evolution Petroleum is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Riley Exploration and Evolution Petroleum

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

The idea behind Riley Exploration Permian and Evolution 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.