Correlation Between Mexco Energy and Gran Tierra

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

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

Diversification Opportunities for Mexco Energy and Gran Tierra

-0.33

Correlation Coefficient

Mexco Energy  Gran Tierra

Very good diversification

The 3 months correlation between Mexco and Gran is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Mexco Energy and Gran Tierra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gran Tierra Energy and Mexco 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 Mexco Energy are associated (or correlated) with Gran Tierra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gran Tierra Energy has no effect on the direction of Mexco Energy i.e., Mexco Energy and Gran Tierra go up and down completely randomly.

Pair Corralation between Mexco Energy and Gran Tierra

Considering the 90-day investment horizon Mexco Energy is expected to under-perform the Gran Tierra. In addition to that, Mexco Energy is 1.35 times more volatile than Gran Tierra Energy. It trades about -0.18 of its total potential returns per unit of risk. Gran Tierra Energy is currently generating about -0.05 per unit of volatility. If you would invest  648.00  in Gran Tierra Energy on August 3, 2024 and sell it today you would lose (16.00) from holding Gran Tierra Energy or give up 2.47% of portfolio value over 90 days.

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

Mexco Energy  vs.  Gran Tierra Energy

Mexco Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mexco Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Mexco Energy may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Gran Tierra Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gran Tierra Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Mexco Energy and Gran Tierra

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

The idea behind Mexco Energy and Gran Tierra Energy 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.