Correlation Between Pharos Energy and Vital Energy

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

By analyzing existing cross correlation between Pharos Energy plc and Vital Energy, you can compare the effects of market volatilities on Pharos Energy and Vital Energy 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 Pharos Energy with a short position of Vital Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pharos Energy and Vital Energy.

Diversification Opportunities for Pharos Energy and Vital Energy

-0.74

Correlation Coefficient

Pharos Energy  Vital Energy

Pay attention - limited upside

The 3 months correlation between Pharos and Vital is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Pharos Energy plc and Vital Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vital Energy and Pharos Energy 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 Pharos Energy plc are associated (or correlated) with Vital Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vital Energy has no effect on the direction of Pharos Energy i.e., Pharos Energy and Vital Energy go up and down completely randomly.

Pair Corralation between Pharos Energy and Vital Energy

Assuming the 90 days horizon Pharos Energy is expected to generate 1.89 times less return on investment than Vital Energy. In addition to that, Pharos Energy is 1.05 times more volatile than Vital Energy. It trades about 0.04 of its total potential returns per unit of risk. Vital Energy is currently generating about 0.07 per unit of volatility. If you would invest  4,569  in Vital Energy on February 19, 2024 and sell it today you would earn a total of  384.00  from holding Vital Energy or generate 8.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Pharos Energy plc  vs.  Vital Energy

Pharos Energy plc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pharos Energy plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Pharos Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Vital Energy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vital Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, Vital Energy may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Pharos Energy and Vital Energy

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

The idea behind Pharos Energy plc and Vital Energy 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.