Correlation Between Reserve Petroleum and POSCO Holdings

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

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

Diversification Opportunities for Reserve Petroleum and POSCO Holdings

0.41

Correlation Coefficient

Reserve Petroleum  POSCO Holdings

Very weak diversification

The 3 months correlation between Reserve and POSCO is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding The Reserve Petroleum and POSCO Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POSCO Holdings and Reserve Petroleum 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 The Reserve Petroleum are associated (or correlated) with POSCO Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POSCO Holdings has no effect on the direction of Reserve Petroleum i.e., Reserve Petroleum and POSCO Holdings go up and down completely randomly.

Pair Corralation between Reserve Petroleum and POSCO Holdings

Given the investment horizon of 90 days The Reserve Petroleum is expected to generate 1.38 times more return on investment than POSCO Holdings. However, Reserve Petroleum is 1.38 times more volatile than POSCO Holdings. It trades about 0.03 of its potential returns per unit of risk. POSCO Holdings is currently generating about -0.3 per unit of risk. If you would invest  16,000  in The Reserve Petroleum on September 18, 2024 and sell it today you would earn a total of  151.00  from holding The Reserve Petroleum or generate 0.94% return on investment over 90 days.

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

The Reserve Petroleum  vs.  POSCO Holdings

Reserve Petroleum

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days The Reserve Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Reserve Petroleum is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

POSCO Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days POSCO Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Reserve Petroleum and POSCO Holdings

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

The idea behind The Reserve Petroleum and POSCO Holdings 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.