Correlation Between Small Cap and Century Petroleum

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

By analyzing existing cross correlation between Small Cap Core and Century Petroleum Corp, you can compare the effects of market volatilities on Small Cap and Century 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 Small Cap with a short position of Century Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Century Petroleum.

Diversification Opportunities for Small Cap and Century Petroleum

0.0

Correlation Coefficient

Small Cap  Century Petroleum

Pay attention - limited upside

The 3 months correlation between Small and Century is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Century Petroleum Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Petroleum Corp and Small Cap 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 Small Cap Core are associated (or correlated) with Century Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Petroleum Corp has no effect on the direction of Small Cap i.e., Small Cap and Century Petroleum go up and down completely randomly.

Pair Corralation between Small Cap and Century Petroleum

Assuming the 90 days horizon Small Cap is expected to generate 83.29 times less return on investment than Century Petroleum. But when comparing it to its historical volatility, Small Cap Core is 33.61 times less risky than Century Petroleum. It trades about 0.02 of its potential returns per unit of risk. Century Petroleum Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.01  in Century Petroleum Corp on October 5, 2024 and sell it today you would lose (0.01) from holding Century Petroleum Corp or give up 90.0% of portfolio value over 90 days.

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

Small Cap Core  vs.  Century Petroleum Corp

Small Cap Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Core has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Century Petroleum Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Century Petroleum Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Century Petroleum is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Small Cap and Century Petroleum

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

The idea behind Small Cap Core and Century Petroleum Corp 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.