Correlation Between Whitecap Resources and Gear Energy

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

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

Diversification Opportunities for Whitecap Resources and Gear Energy

0.31

Correlation Coefficient

Whitecap Resources  Gear Energy

Weak diversification

The 3 months correlation between Whitecap and Gear is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Whitecap Resources and Gear Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gear Energy and Whitecap Resources 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 Whitecap Resources are associated (or correlated) with Gear Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gear Energy has no effect on the direction of Whitecap Resources i.e., Whitecap Resources and Gear Energy go up and down completely randomly.

Pair Corralation between Whitecap Resources and Gear Energy

Assuming the 90 days horizon Whitecap Resources is expected to generate 0.98 times more return on investment than Gear Energy. However, Whitecap Resources is 1.02 times less risky than Gear Energy. It trades about -0.03 of its potential returns per unit of risk. Gear Energy is currently generating about -0.07 per unit of risk. If you would invest  692.00  in Whitecap Resources on December 29, 2024 and sell it today you would lose (43.00) from holding Whitecap Resources or give up 6.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	45.9%
Values	Daily Returns

Whitecap Resources  vs.  Gear Energy

Whitecap Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Whitecap Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Whitecap Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Gear Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gear Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Whitecap Resources and Gear Energy

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

The idea behind Whitecap Resources and Gear 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.