Correlation Between Imperial Oil and Cenovus Energy
Can any of the company-specific risk be diversified away by investing in both Imperial Oil and Cenovus 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 Imperial Oil and Cenovus Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Imperial Oil and Cenovus Energy, you can compare the effects of market volatilities on Imperial Oil and Cenovus 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 Imperial Oil with a short position of Cenovus Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Imperial Oil and Cenovus Energy.
Diversification Opportunities for Imperial Oil and Cenovus Energy
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Imperial and Cenovus is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Oil and Cenovus Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cenovus Energy and Imperial 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 Imperial Oil are associated (or correlated) with Cenovus Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cenovus Energy has no effect on the direction of Imperial Oil i.e., Imperial Oil and Cenovus Energy go up and down completely randomly.
Pair Corralation between Imperial Oil and Cenovus Energy
Considering the 90-day investment horizon Imperial Oil is expected to generate 0.88 times more return on investment than Cenovus Energy. However, Imperial Oil is 1.14 times less risky than Cenovus Energy. It trades about 0.09 of its potential returns per unit of risk. Cenovus Energy is currently generating about 0.02 per unit of risk. If you would invest 5,830 in Imperial Oil on January 20, 2024 and sell it today you would earn a total of 1,020 from holding Imperial Oil or generate 17.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Imperial Oil vs. Cenovus Energy
Performance |
| Timeline |
| Imperial Oil |
| Cenovus Energy |
Imperial Oil and Cenovus Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Imperial Oil and Cenovus Energy
The main advantage of trading using opposite Imperial Oil and Cenovus Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Imperial Oil position performs unexpectedly, Cenovus 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 Cenovus Energy will offset losses from the drop in Cenovus Energy's long position.The idea behind Imperial Oil and Cenovus 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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