Correlation Between San Juan and AXP Energy

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

Diversification Opportunities for San Juan and AXP Energy

0.06

Correlation Coefficient

San Juan  AXP Energy

Significant diversification

The 3 months correlation between San and AXP is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding San Juan Basin and AXP Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AXP 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 AXP Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AXP Energy has no effect on the direction of San Juan i.e., San Juan and AXP Energy go up and down completely randomly.

Pair Corralation between San Juan and AXP Energy

Considering the 90-day investment horizon San Juan is expected to generate 2.29 times less return on investment than AXP Energy. But when comparing it to its historical volatility, San Juan Basin is 5.76 times less risky than AXP Energy. It trades about 0.23 of its potential returns per unit of risk. AXP Energy is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  0.09  in AXP Energy on October 27, 2024 and sell it today you would earn a total of  0.00  from holding AXP Energy or generate 0.0% return on investment over 90 days.

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

San Juan Basin  vs.  AXP Energy

San Juan Basin

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in San Juan Basin are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward-looking indicators, San Juan may actually be approaching a critical reversion point that can send shares even higher in February 2025.

AXP Energy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AXP Energy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AXP Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with San Juan and AXP Energy

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

The idea behind San Juan Basin and AXP 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.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.