Correlation Between Block and Tethys Petroleum

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

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

Diversification Opportunities for Block and Tethys Petroleum

0.82

Correlation Coefficient

Block  Tethys Petroleum

Very poor diversification

The 3 months correlation between Block and Tethys is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Block Inc and Tethys Petroleum Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tethys Petroleum and Block 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 Block Inc are associated (or correlated) with Tethys Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tethys Petroleum has no effect on the direction of Block i.e., Block and Tethys Petroleum go up and down completely randomly.

Pair Corralation between Block and Tethys Petroleum

Allowing for the 90-day total investment horizon Block Inc is expected to generate 0.7 times more return on investment than Tethys Petroleum. However, Block Inc is 1.43 times less risky than Tethys Petroleum. It trades about -0.2 of its potential returns per unit of risk. Tethys Petroleum Limited is currently generating about -0.22 per unit of risk. If you would invest  8,146  in Block Inc on January 20, 2024 and sell it today you would lose (940.00) from holding Block Inc or give up 11.54% of portfolio value over 90 days.

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

Block Inc  vs.  Tethys Petroleum Limited

Block Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Block Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, Block may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Tethys Petroleum

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tethys Petroleum Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical indicators, Tethys Petroleum reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Block and Tethys Petroleum

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

The idea behind Block Inc and Tethys Petroleum Limited 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.