Correlation Between San Juan and Empire Petroleum

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

Diversification Opportunities for San Juan and Empire Petroleum

0.42

Correlation Coefficient

San Juan  Empire Petroleum

Very weak diversification

The 3 months correlation between San and Empire is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding San Juan Basin and Empire Petroleum Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Empire Petroleum Corp 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 Empire Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Empire Petroleum Corp has no effect on the direction of San Juan i.e., San Juan and Empire Petroleum go up and down completely randomly.

Pair Corralation between San Juan and Empire Petroleum

Considering the 90-day investment horizon San Juan Basin is expected to under-perform the Empire Petroleum. But the stock apears to be less risky and, when comparing its historical volatility, San Juan Basin is 1.72 times less risky than Empire Petroleum. The stock trades about -0.04 of its potential returns per unit of risk. The Empire Petroleum Corp is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  575.00  in Empire Petroleum Corp on September 26, 2024 and sell it today you would earn a total of  155.00  from holding Empire Petroleum Corp or generate 26.96% return on investment over 90 days.

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

San Juan Basin  vs.  Empire Petroleum Corp

San Juan Basin

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in San Juan Basin are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward-looking indicators, San Juan is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Empire Petroleum Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Empire Petroleum Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Empire Petroleum reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with San Juan and Empire Petroleum

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

The idea behind San Juan Basin and Empire Petroleum Corp 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.