Correlation Between ConocoPhillips and Evolution Petroleum

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

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

Diversification Opportunities for ConocoPhillips and Evolution Petroleum

0.47

Correlation Coefficient

ConocoPhillips  Evolution Petroleum

Very weak diversification

The 3 months correlation between ConocoPhillips and Evolution is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding ConocoPhillips and Evolution Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution Petroleum and ConocoPhillips 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 ConocoPhillips are associated (or correlated) with Evolution Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution Petroleum has no effect on the direction of ConocoPhillips i.e., ConocoPhillips and Evolution Petroleum go up and down completely randomly.

Pair Corralation between ConocoPhillips and Evolution Petroleum

Assuming the 90 days horizon ConocoPhillips is expected to under-perform the Evolution Petroleum. But the stock apears to be less risky and, when comparing its historical volatility, ConocoPhillips is 1.6 times less risky than Evolution Petroleum. The stock trades about -0.08 of its potential returns per unit of risk. The Evolution Petroleum is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  518.00  in Evolution Petroleum on October 9, 2024 and sell it today you would lose (13.00) from holding Evolution Petroleum or give up 2.51% of portfolio value over 90 days.

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

ConocoPhillips  vs.  Evolution Petroleum

ConocoPhillips

Risk-Adjusted Performance

0 of 100

Very Weak

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

Evolution Petroleum

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution Petroleum are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Evolution Petroleum is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ConocoPhillips and Evolution Petroleum

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

The idea behind ConocoPhillips and Evolution Petroleum 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.