Correlation Between Natural Gas and Recon Technology

Can any of the company-specific risk be diversified away by investing in both Natural Gas and Recon Technology 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 Natural Gas and Recon Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Natural Gas and Recon Technology

-0.77

Correlation Coefficient

Natural Gas  Recon Technology

Pay attention - limited upside

The 3 months correlation between Natural and Recon is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Natural Gas Services and Recon Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Recon Technology and Natural Gas 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 Natural Gas Services are associated (or correlated) with Recon Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Recon Technology has no effect on the direction of Natural Gas i.e., Natural Gas and Recon Technology go up and down completely randomly.

Pair Corralation between Natural Gas and Recon Technology

Considering the 90-day investment horizon Natural Gas Services is expected to generate 0.27 times more return on investment than Recon Technology. However, Natural Gas Services is 3.75 times less risky than Recon Technology. It trades about -0.14 of its potential returns per unit of risk. Recon Technology is currently generating about -0.17 per unit of risk. If you would invest  2,396  in Natural Gas Services on February 14, 2024 and sell it today you would lose (144.00) from holding Natural Gas Services or give up 6.01% of portfolio value over 90 days.

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

Natural Gas Services  vs.  Recon Technology

Natural Gas Services

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Gas Services are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Natural Gas unveiled solid returns over the last few months and may actually be approaching a breakup point.

Recon Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Recon Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Natural Gas and Recon Technology

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

The idea behind Natural Gas Services and Recon Technology 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.