Can any of the company-specific risk be diversified away by investing in both Zion Oil and Antero Resources 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 Zion Oil and Antero Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Zion Oil Gas and Antero Resources Corp, you can compare the effects of market volatilities on Zion Oil and Antero Resources 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 Zion Oil with a short position of Antero Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zion Oil and Antero Resources.
Diversification Opportunities for Zion Oil and Antero Resources
The 3 months correlation between Zion and Antero is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Zion Oil Gas and Antero Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Antero Resources Corp and Zion 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 Zion Oil Gas are associated (or correlated) with Antero Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Antero Resources Corp has no effect on the direction of Zion Oil i.e., Zion Oil and Antero Resources go up and down completely randomly.
Pair Corralation between Zion Oil and Antero Resources
Given the investment horizon of 90 days Zion Oil Gas is expected to generate 2.41 times more return on investment than Antero Resources. However, Zion Oil is 2.41 times more volatile than Antero Resources Corp. It trades about 0.03 of its potential returns per unit of risk. Antero Resources Corp is currently generating about -0.31 per unit of risk. If you would invest 6.00 in Zion Oil Gas on August 30, 2023 and sell it today you would earn a total of 0.00 from holding Zion Oil Gas or generate 0.0% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Zion Oil Gas are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Zion Oil reported solid returns over the last few months and may actually be approaching a breakup point.
Over the last 90 days Antero Resources Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.
The main advantage of trading using opposite Zion Oil and Antero Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zion Oil position performs unexpectedly, Antero Resources 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 Antero Resources will offset losses from the drop in Antero Resources' long position.
The idea behind Zion Oil Gas and Antero Resources Corp 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.
Check out your portfolio center.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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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