Correlation Between SDX Energy and International Petroleum

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

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

Diversification Opportunities for SDX Energy and International Petroleum

0.39

Correlation Coefficient

SDX Energy  International Petroleum

Weak diversification

The 3 months correlation between SDX and International is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding SDX Energy plc and International Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Petroleum and SDX Energy 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 SDX Energy plc are associated (or correlated) with International Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Petroleum has no effect on the direction of SDX Energy i.e., SDX Energy and International Petroleum go up and down completely randomly.

Pair Corralation between SDX Energy and International Petroleum

Assuming the 90 days horizon SDX Energy plc is expected to generate 19.14 times more return on investment than International Petroleum. However, SDX Energy is 19.14 times more volatile than International Petroleum. It trades about 0.11 of its potential returns per unit of risk. International Petroleum is currently generating about 0.02 per unit of risk. If you would invest  2.26  in SDX Energy plc on September 5, 2024 and sell it today you would lose (1.55) from holding SDX Energy plc or give up 68.58% of portfolio value over 90 days.

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

SDX Energy plc  vs.  International Petroleum

SDX Energy plc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SDX Energy plc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, SDX Energy reported solid returns over the last few months and may actually be approaching a breakup point.

International Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with SDX Energy and International Petroleum

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

The idea behind SDX Energy plc and International 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.

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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.