Correlation Between VanEck Oil and Louisiana Pacific

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

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

Diversification Opportunities for VanEck Oil and Louisiana Pacific

-0.37

Correlation Coefficient

VanEck Oil  Louisiana Pacific

Very good diversification

The 3 months correlation between VanEck and Louisiana is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Oil Services and Louisiana Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Louisiana Pacific and VanEck Oil 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 VanEck Oil Services are associated (or correlated) with Louisiana Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Louisiana Pacific has no effect on the direction of VanEck Oil i.e., VanEck Oil and Louisiana Pacific go up and down completely randomly.

Pair Corralation between VanEck Oil and Louisiana Pacific

Considering the 90-day investment horizon VanEck Oil Services is expected to under-perform the Louisiana Pacific. In addition to that, VanEck Oil is 1.11 times more volatile than Louisiana Pacific. It trades about -0.01 of its total potential returns per unit of risk. Louisiana Pacific is currently generating about 0.27 per unit of volatility. If you would invest  8,066  in Louisiana Pacific on July 10, 2024 and sell it today you would earn a total of  2,755  from holding Louisiana Pacific or generate 34.16% return on investment over 90 days.

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

VanEck Oil Services  vs.  Louisiana Pacific

VanEck Oil Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VanEck Oil Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, VanEck Oil is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Louisiana Pacific

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Louisiana Pacific are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Louisiana Pacific showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with VanEck Oil and Louisiana Pacific

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

The idea behind VanEck Oil Services and Louisiana Pacific 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.