Correlation Between C Mer and Paz Oil

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

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

Diversification Opportunities for C Mer and Paz Oil

-0.43

Correlation Coefficient

C Mer  Paz Oil

Very good diversification

The 3 months correlation between CMER and Paz is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding C Mer Industries and Paz Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paz Oil and C Mer 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 C Mer Industries are associated (or correlated) with Paz Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paz Oil has no effect on the direction of C Mer i.e., C Mer and Paz Oil go up and down completely randomly.

Pair Corralation between C Mer and Paz Oil

Assuming the 90 days trading horizon C Mer Industries is expected to generate 3.32 times more return on investment than Paz Oil. However, C Mer is 3.32 times more volatile than Paz Oil. It trades about 0.13 of its potential returns per unit of risk. Paz Oil is currently generating about -0.03 per unit of risk. If you would invest  138,000  in C Mer Industries on February 9, 2024 and sell it today you would earn a total of  11,500  from holding C Mer Industries or generate 8.33% return on investment over 90 days.

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

C Mer Industries  vs.  Paz Oil

C Mer Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days C Mer Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, C Mer is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Paz Oil

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Paz Oil are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Paz Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with C Mer and Paz Oil

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

The idea behind C Mer Industries and Paz Oil 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.