Correlation Between Baytex Energy and Cenovus Energy

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

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

Diversification Opportunities for Baytex Energy and Cenovus Energy

0.93

Correlation Coefficient

Baytex Energy  Cenovus Energy

Almost no diversification

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

Pair Corralation between Baytex Energy and Cenovus Energy

Assuming the 90 days trading horizon Baytex Energy Corp is expected to under-perform the Cenovus Energy. In addition to that, Baytex Energy is 1.38 times more volatile than Cenovus Energy. It trades about -0.05 of its total potential returns per unit of risk. Cenovus Energy is currently generating about -0.04 per unit of volatility. If you would invest  2,110  in Cenovus Energy on December 30, 2024 and sell it today you would lose (137.00) from holding Cenovus Energy or give up 6.49% of portfolio value over 90 days.

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

Baytex Energy Corp  vs.  Cenovus Energy

Baytex Energy Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Baytex Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Cenovus Energy

Risk-Adjusted Performance

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 very healthy technical and fundamental indicators, Cenovus Energy is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Baytex Energy and Cenovus Energy

The main advantage of trading using opposite Baytex Energy and Cenovus Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baytex Energy 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 Baytex Energy Corp 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 Transaction History module to view history of all your transactions and understand their impact on performance.