Correlation Between Tullow Oil and Rockhopper Exploration

Can any of the company-specific risk be diversified away by investing in both Tullow Oil and Rockhopper Exploration 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 Tullow Oil and Rockhopper Exploration into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tullow Oil plc and Rockhopper Exploration plc, you can compare the effects of market volatilities on Tullow Oil and Rockhopper Exploration 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 Tullow Oil with a short position of Rockhopper Exploration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tullow Oil and Rockhopper Exploration.

Diversification Opportunities for Tullow Oil and Rockhopper Exploration

-0.31

Correlation Coefficient

Tullow Oil  Rockhopper Exploration

Very good diversification

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

Pair Corralation between Tullow Oil and Rockhopper Exploration

Assuming the 90 days horizon Tullow Oil plc is expected to under-perform the Rockhopper Exploration. In addition to that, Tullow Oil is 1.02 times more volatile than Rockhopper Exploration plc. It trades about -0.01 of its total potential returns per unit of risk. Rockhopper Exploration plc is currently generating about 0.09 per unit of volatility. If you would invest  14.00  in Rockhopper Exploration plc on October 2, 2024 and sell it today you would earn a total of  19.00  from holding Rockhopper Exploration plc or generate 135.71% return on investment over 90 days.

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

Tullow Oil plc  vs.  Rockhopper Exploration plc

Tullow Oil plc

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tullow Oil plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Tullow Oil may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Rockhopper Exploration

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rockhopper Exploration plc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Rockhopper Exploration reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tullow Oil and Rockhopper Exploration

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

The idea behind Tullow Oil plc and Rockhopper Exploration 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.