Correlation Between Santa Fe and Tullow Oil

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

By analyzing existing cross correlation between Santa Fe Petroleum and Tullow Oil PLC, you can compare the effects of market volatilities on Santa Fe and Tullow Oil 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 Santa Fe with a short position of Tullow Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Santa Fe and Tullow Oil.

Diversification Opportunities for Santa Fe and Tullow Oil

0.0

Correlation Coefficient

Santa Fe  Tullow Oil

Pay attention - limited upside

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

Pair Corralation between Santa Fe and Tullow Oil

Given the investment horizon of 90 days Santa Fe Petroleum is expected to under-perform the Tullow Oil. But the pink sheet apears to be less risky and, when comparing its historical volatility, Santa Fe Petroleum is 2.17 times less risky than Tullow Oil. The pink sheet trades about -0.06 of its potential returns per unit of risk. The Tullow Oil PLC is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  21.00  in Tullow Oil PLC on October 2, 2024 and sell it today you would lose (9.00) from holding Tullow Oil PLC or give up 42.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Santa Fe Petroleum  vs.  Tullow Oil PLC

Santa Fe Petroleum

Risk-Adjusted Performance

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Very Weak

Over the last 90 days Santa Fe Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Santa Fe is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Tullow Oil PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tullow Oil PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Tullow Oil is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Santa Fe and Tullow Oil

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

The idea behind Santa Fe Petroleum and Tullow Oil PLC 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.