Correlation Between San Juan and Evolution Petroleum

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

Diversification Opportunities for San Juan and Evolution Petroleum

-0.27

Correlation Coefficient

San Juan  Evolution Petroleum

Very good diversification

The 3 months correlation between San and Evolution is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding San Juan Basin and Evolution Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution Petroleum 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 Evolution Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution Petroleum has no effect on the direction of San Juan i.e., San Juan and Evolution Petroleum go up and down completely randomly.

Pair Corralation between San Juan and Evolution Petroleum

Considering the 90-day investment horizon San Juan Basin is expected to generate 2.58 times more return on investment than Evolution Petroleum. However, San Juan is 2.58 times more volatile than Evolution Petroleum. It trades about 0.17 of its potential returns per unit of risk. Evolution Petroleum is currently generating about 0.02 per unit of risk. If you would invest  378.00  in San Juan Basin on December 25, 2024 and sell it today you would earn a total of  160.00  from holding San Juan Basin or generate 42.33% return on investment over 90 days.

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

San Juan Basin  vs.  Evolution Petroleum

San Juan Basin

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in San Juan Basin are ranked lower than 13 (%) 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.

Evolution Petroleum

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution Petroleum are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Evolution Petroleum is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with San Juan and Evolution Petroleum

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

The idea behind San Juan Basin and Evolution 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.