Correlation Between San Juan and ADX Energy

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

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

Diversification Opportunities for San Juan and ADX Energy

-0.05

Correlation Coefficient

San Juan  ADX Energy

Good diversification

The 3 months correlation between San and ADX is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding San Juan Basin and ADX Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADX Energy and San Juan 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 San Juan Basin are associated (or correlated) with ADX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADX Energy has no effect on the direction of San Juan i.e., San Juan and ADX Energy go up and down completely randomly.

Pair Corralation between San Juan and ADX Energy

Considering the 90-day investment horizon San Juan is expected to generate 3.92 times less return on investment than ADX Energy. But when comparing it to its historical volatility, San Juan Basin is 5.85 times less risky than ADX Energy. It trades about 0.13 of its potential returns per unit of risk. ADX Energy is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1.20  in ADX Energy on December 2, 2024 and sell it today you would lose (0.12) from holding ADX Energy or give up 10.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

San Juan Basin  vs.  ADX Energy

San Juan Basin

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in San Juan Basin are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward-looking indicators, San Juan unveiled solid returns over the last few months and may actually be approaching a breakup point.

ADX Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ADX Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, ADX Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with San Juan and ADX Energy

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

The idea behind San Juan Basin and ADX Energy 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.