Correlation Between Source Rock and Canacol Energy

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

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

Diversification Opportunities for Source Rock and Canacol Energy

0.21

Correlation Coefficient

Source Rock  Canacol Energy

Modest diversification

The 3 months correlation between Source and Canacol is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Source Rock Royalties and Canacol Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canacol Energy and Source Rock 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 Source Rock Royalties are associated (or correlated) with Canacol Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canacol Energy has no effect on the direction of Source Rock i.e., Source Rock and Canacol Energy go up and down completely randomly.

Pair Corralation between Source Rock and Canacol Energy

Assuming the 90 days horizon Source Rock Royalties is expected to generate 0.58 times more return on investment than Canacol Energy. However, Source Rock Royalties is 1.73 times less risky than Canacol Energy. It trades about 0.05 of its potential returns per unit of risk. Canacol Energy is currently generating about -0.05 per unit of risk. If you would invest  59.00  in Source Rock Royalties on December 4, 2024 and sell it today you would earn a total of  27.00  from holding Source Rock Royalties or generate 45.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Source Rock Royalties  vs.  Canacol Energy

Source Rock Royalties

Risk-Adjusted Performance

Very Weak

Over the last 90 days Source Rock Royalties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Source Rock is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Canacol Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canacol Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Source Rock and Canacol Energy

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

The idea behind Source Rock Royalties and Canacol 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.