Correlation Between Adams Resources and Cenovus Energy

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

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

Diversification Opportunities for Adams Resources and Cenovus Energy

-0.55

Correlation Coefficient

Adams Resources  Cenovus Energy

Excellent diversification

The 3 months correlation between Adams and Cenovus is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Adams Resources Energy and Cenovus Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cenovus Energy and Adams Resources 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 Adams Resources Energy 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 Adams Resources i.e., Adams Resources and Cenovus Energy go up and down completely randomly.

Pair Corralation between Adams Resources and Cenovus Energy

Allowing for the 90-day total investment horizon Adams Resources Energy is expected to generate 2.63 times more return on investment than Cenovus Energy. However, Adams Resources is 2.63 times more volatile than Cenovus Energy. It trades about 0.17 of its potential returns per unit of risk. Cenovus Energy is currently generating about -0.13 per unit of risk. If you would invest  2,377  in Adams Resources Energy on August 30, 2024 and sell it today you would earn a total of  1,347  from holding Adams Resources Energy or generate 56.67% return on investment over 90 days.

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

Adams Resources Energy  vs.  Cenovus Energy

Adams Resources Energy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Adams Resources Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, Adams Resources exhibited solid returns over the last few months and may actually be approaching a breakup point.

Cenovus Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cenovus Energy 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 basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Adams Resources and Cenovus Energy

The main advantage of trading using opposite Adams Resources and Cenovus Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adams Resources 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 Adams Resources Energy 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.