Correlation Between Eni SPA and Prairie Provident

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

By analyzing existing cross correlation between Eni SpA ADR and Prairie Provident Resources, you can compare the effects of market volatilities on Eni SPA and Prairie Provident 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 Eni SPA with a short position of Prairie Provident. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eni SPA and Prairie Provident.

Diversification Opportunities for Eni SPA and Prairie Provident

0.68

Correlation Coefficient

Eni SPA  Prairie Provident

Poor diversification

The 3 months correlation between Eni and Prairie is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Eni SpA ADR and Prairie Provident Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prairie Provident and Eni SPA 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 Eni SpA ADR are associated (or correlated) with Prairie Provident. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prairie Provident has no effect on the direction of Eni SPA i.e., Eni SPA and Prairie Provident go up and down completely randomly.

Pair Corralation between Eni SPA and Prairie Provident

Taking into account the 90-day investment horizon Eni SpA ADR is expected to under-perform the Prairie Provident. But the stock apears to be less risky and, when comparing its historical volatility, Eni SpA ADR is 7.76 times less risky than Prairie Provident. The stock trades about -0.04 of its potential returns per unit of risk. The Prairie Provident Resources is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3.98  in Prairie Provident Resources on March 31, 2024 and sell it today you would earn a total of  0.43  from holding Prairie Provident Resources or generate 10.8% return on investment over 90 days.

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

Eni SpA ADR  vs.  Prairie Provident Resources

Eni SpA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eni SpA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Eni SPA is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Prairie Provident

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prairie Provident Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Prairie Provident is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Eni SPA and Prairie Provident

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

The idea behind Eni SpA ADR and Prairie Provident Resources 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.