Correlation Between Evolution Petroleum and Northern Oil

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

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

Diversification Opportunities for Evolution Petroleum and Northern Oil

0.85

Correlation Coefficient

Evolution Petroleum  Northern Oil

Very poor diversification

The 3 months correlation between Evolution and Northern is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Evolution Petroleum and Northern Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Oil Gas and Evolution 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 Evolution Petroleum are associated (or correlated) with Northern Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Oil Gas has no effect on the direction of Evolution Petroleum i.e., Evolution Petroleum and Northern Oil go up and down completely randomly.

Pair Corralation between Evolution Petroleum and Northern Oil

Considering the 90-day investment horizon Evolution Petroleum is expected to generate 0.67 times more return on investment than Northern Oil. However, Evolution Petroleum is 1.49 times less risky than Northern Oil. It trades about 0.16 of its potential returns per unit of risk. Northern Oil Gas is currently generating about 0.1 per unit of risk. If you would invest  410.00  in Evolution Petroleum on May 1, 2025 and sell it today you would earn a total of  78.00  from holding Evolution Petroleum or generate 19.02% return on investment over 90 days.

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

Evolution Petroleum  vs.  Northern Oil Gas

Evolution Petroleum

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution Petroleum are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Evolution Petroleum displayed solid returns over the last few months and may actually be approaching a breakup point.

Northern Oil Gas

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Oil Gas are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Northern Oil reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Evolution Petroleum and Northern Oil

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

The idea behind Evolution Petroleum and Northern Oil Gas 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.