Correlation Between San Juan and Tullow Oil

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

Diversification Opportunities for San Juan and Tullow Oil

-0.37

Correlation Coefficient

San Juan  Tullow Oil

Very good diversification

The 3 months correlation between San and Tullow is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding San Juan Basin 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 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 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 San Juan i.e., San Juan and Tullow Oil go up and down completely randomly.

Pair Corralation between San Juan and Tullow Oil

Considering the 90-day investment horizon San Juan Basin is expected to generate 0.65 times more return on investment than Tullow Oil. However, San Juan Basin is 1.53 times less risky than Tullow Oil. It trades about 0.16 of its potential returns per unit of risk. Tullow Oil plc is currently generating about -0.05 per unit of risk. If you would invest  383.00  in San Juan Basin on December 24, 2024 and sell it today you would earn a total of  155.00  from holding San Juan Basin or generate 40.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

San Juan Basin  vs.  Tullow Oil plc

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 12 (%) 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.

Tullow Oil plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tullow Oil plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with San Juan and Tullow Oil

The main advantage of trading using opposite San Juan and Tullow Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if San Juan 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 San Juan Basin 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.