Correlation Between Avanti Energy and MEG Energy

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

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

Diversification Opportunities for Avanti Energy and MEG Energy

0.08

Correlation Coefficient

Avanti Energy  MEG Energy

Significant diversification

The 3 months correlation between Avanti and MEG is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Avanti Energy and MEG Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MEG Energy Corp and Avanti Energy 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 Avanti Energy are associated (or correlated) with MEG Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MEG Energy Corp has no effect on the direction of Avanti Energy i.e., Avanti Energy and MEG Energy go up and down completely randomly.

Pair Corralation between Avanti Energy and MEG Energy

Assuming the 90 days horizon Avanti Energy is expected to under-perform the MEG Energy. In addition to that, Avanti Energy is 3.46 times more volatile than MEG Energy Corp. It trades about -0.05 of its total potential returns per unit of risk. MEG Energy Corp is currently generating about -0.04 per unit of volatility. If you would invest  2,048  in MEG Energy Corp on August 31, 2024 and sell it today you would lose (258.00) from holding MEG Energy Corp or give up 12.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

Avanti Energy  vs.  MEG Energy Corp

Avanti Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avanti Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

MEG Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Avanti Energy and MEG Energy

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

The idea behind Avanti Energy and MEG Energy Corp 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.