Correlation Between Woodside Petroleum and Murphy Oil

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

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

Diversification Opportunities for Woodside Petroleum and Murphy Oil

0.34

Correlation Coefficient

Woodside Petroleum  Murphy Oil

Weak diversification

The 3 months correlation between Woodside and Murphy is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Woodside Petroleum and Murphy Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Murphy Oil and Woodside Petroleum 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 Woodside Petroleum are associated (or correlated) with Murphy Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Murphy Oil has no effect on the direction of Woodside Petroleum i.e., Woodside Petroleum and Murphy Oil go up and down completely randomly.

Pair Corralation between Woodside Petroleum and Murphy Oil

Assuming the 90 days horizon Woodside Petroleum is expected to generate 3.21 times more return on investment than Murphy Oil. However, Woodside Petroleum is 3.21 times more volatile than Murphy Oil. It trades about 0.04 of its potential returns per unit of risk. Murphy Oil is currently generating about -0.01 per unit of risk. If you would invest  1,408  in Woodside Petroleum on December 28, 2024 and sell it today you would earn a total of  17.00  from holding Woodside Petroleum or generate 1.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Woodside Petroleum  vs.  Murphy Oil

Woodside Petroleum

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Woodside Petroleum are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Woodside Petroleum reported solid returns over the last few months and may actually be approaching a breakup point.

Murphy Oil

Risk-Adjusted Performance

Very Weak

Over the last 90 days Murphy Oil has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Murphy Oil is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Woodside Petroleum and Murphy Oil

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

The idea behind Woodside Petroleum and Murphy Oil 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.