Correlation Between Reserve Petroleum and FAR

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

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

Diversification Opportunities for Reserve Petroleum and FAR

0.32

Correlation Coefficient

Reserve Petroleum  FAR

Weak diversification

The 3 months correlation between Reserve and FAR is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding The Reserve Petroleum and FAR Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAR Limited and Reserve Petroleum 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 The Reserve Petroleum are associated (or correlated) with FAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAR Limited has no effect on the direction of Reserve Petroleum i.e., Reserve Petroleum and FAR go up and down completely randomly.

Pair Corralation between Reserve Petroleum and FAR

Given the investment horizon of 90 days Reserve Petroleum is expected to generate 2.74 times less return on investment than FAR. In addition to that, Reserve Petroleum is 1.41 times more volatile than FAR Limited. It trades about 0.04 of its total potential returns per unit of risk. FAR Limited is currently generating about 0.14 per unit of volatility. If you would invest  29.00  in FAR Limited on December 2, 2024 and sell it today you would earn a total of  4.00  from holding FAR Limited or generate 13.79% return on investment over 90 days.

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

The Reserve Petroleum  vs.  FAR Limited

Reserve Petroleum

Risk-Adjusted Performance

Weak

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

FAR Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FAR Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, FAR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reserve Petroleum and FAR

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

The idea behind The Reserve Petroleum and FAR Limited 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.