Correlation Between Small Cap and Strat Petroleum

Can any of the company-specific risk be diversified away by investing in both Small Cap and Strat 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 Strat 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 Strat Petroleum, you can compare the effects of market volatilities on Small Cap and Strat 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 Strat Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Strat Petroleum.

Diversification Opportunities for Small Cap and Strat Petroleum

0.0

Correlation Coefficient

Small Cap  Strat Petroleum

Pay attention - limited upside

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

Pair Corralation between Small Cap and Strat Petroleum

Assuming the 90 days horizon Small Cap is expected to generate 83.29 times less return on investment than Strat Petroleum. But when comparing it to its historical volatility, Small Cap Core is 33.61 times less risky than Strat Petroleum. It trades about 0.02 of its potential returns per unit of risk. Strat Petroleum is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.01  in Strat Petroleum on October 5, 2024 and sell it today you would lose (0.01) from holding Strat Petroleum or give up 80.0% 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.  Strat Petroleum

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.

Strat Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Strat Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Strat Petroleum is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Small Cap and Strat Petroleum

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

The idea behind Small Cap Core and Strat 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.