Correlation Between Western Energy and Megaworld Corp
Can any of the company-specific risk be diversified away by investing in both Western Energy and Megaworld Corp 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 Western Energy and Megaworld Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Energy Services and Megaworld Corp ADR, you can compare the effects of market volatilities on Western Energy and Megaworld Corp 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 Western Energy with a short position of Megaworld Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Energy and Megaworld Corp.
Diversification Opportunities for Western Energy and Megaworld Corp
-0.12 | Correlation Coefficient |
Good diversification
The 3 months correlation between Western and Megaworld is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Western Energy Services and Megaworld Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Megaworld Corp ADR and Western Energy 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 Western Energy Services are associated (or correlated) with Megaworld Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Megaworld Corp ADR has no effect on the direction of Western Energy i.e., Western Energy and Megaworld Corp go up and down completely randomly.
Pair Corralation between Western Energy and Megaworld Corp
Assuming the 90 days horizon Western Energy Services is expected to generate 0.38 times more return on investment than Megaworld Corp. However, Western Energy Services is 2.61 times less risky than Megaworld Corp. It trades about 0.0 of its potential returns per unit of risk. Megaworld Corp ADR is currently generating about -0.04 per unit of risk. If you would invest 202.00 in Western Energy Services on January 26, 2024 and sell it today you would lose (1.00) from holding Western Energy Services or give up 0.5% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Western Energy Services vs. Megaworld Corp ADR
Performance |
Timeline |
Western Energy Services |
Megaworld Corp ADR |
Western Energy and Megaworld Corp Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Western Energy and Megaworld Corp
The main advantage of trading using opposite Western Energy and Megaworld Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Energy position performs unexpectedly, Megaworld Corp 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 Megaworld Corp will offset losses from the drop in Megaworld Corp's long position.The idea behind Western Energy Services and Megaworld Corp ADR 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.Check out your portfolio center.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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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