Correlation Between Canadian Natural and Cenovus Energy

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

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

Diversification Opportunities for Canadian Natural and Cenovus Energy

0.93

Correlation Coefficient

Canadian Natural  Cenovus Energy

Almost no diversification

The 3 months correlation between Canadian and Cenovus is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Natural Resources and Cenovus Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cenovus Energy and Canadian Natural 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 Canadian Natural Resources 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 Canadian Natural i.e., Canadian Natural and Cenovus Energy go up and down completely randomly.

Pair Corralation between Canadian Natural and Cenovus Energy

Assuming the 90 days trading horizon Canadian Natural is expected to generate 1.73 times less return on investment than Cenovus Energy. In addition to that, Canadian Natural is 1.08 times more volatile than Cenovus Energy. It trades about 0.03 of its total potential returns per unit of risk. Cenovus Energy is currently generating about 0.06 per unit of volatility. If you would invest  2,785  in Cenovus Energy on March 2, 2024 and sell it today you would earn a total of  34.00  from holding Cenovus Energy or generate 1.22% return on investment over 90 days.

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

Canadian Natural Resources  vs.  Cenovus Energy

Canadian Natural Res

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Natural Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Canadian Natural may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Cenovus Energy

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cenovus Energy are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Cenovus Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Natural and Cenovus Energy

The main advantage of trading using opposite Canadian Natural and Cenovus Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Natural 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 Canadian Natural Resources 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.

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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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.