Correlation Between Energy Fund and Oil Gas

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

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

Diversification Opportunities for Energy Fund and Oil Gas

0.97

Correlation Coefficient

Energy Fund  Oil Gas

Almost no diversification

The 3 months correlation between Energy and Oil is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Energy Fund Investor and Oil Gas Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Gas Ultrasector and Energy Fund 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 Energy Fund Investor are associated (or correlated) with Oil Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Gas Ultrasector has no effect on the direction of Energy Fund i.e., Energy Fund and Oil Gas go up and down completely randomly.

Pair Corralation between Energy Fund and Oil Gas

Assuming the 90 days horizon Energy Fund Investor is expected to generate 0.76 times more return on investment than Oil Gas. However, Energy Fund Investor is 1.32 times less risky than Oil Gas. It trades about 0.03 of its potential returns per unit of risk. Oil Gas Ultrasector is currently generating about -0.18 per unit of risk. If you would invest  25,753  in Energy Fund Investor on October 11, 2024 and sell it today you would earn a total of  135.00  from holding Energy Fund Investor or generate 0.52% return on investment over 90 days.

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

Energy Fund Investor  vs.  Oil Gas Ultrasector

Energy Fund Investor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy Fund Investor has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Energy Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Oil Gas Ultrasector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oil Gas Ultrasector has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Energy Fund and Oil Gas

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

The idea behind Energy Fund Investor and Oil Gas Ultrasector 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.