Correlation Between CGX Energy and Avanti Energy

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

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

Diversification Opportunities for CGX Energy and Avanti Energy

-0.33

Correlation Coefficient

CGX Energy  Avanti Energy

Very good diversification

The 3 months correlation between CGX and Avanti is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding CGX Energy and Avanti Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avanti Energy and CGX 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 CGX Energy are associated (or correlated) with Avanti Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avanti Energy has no effect on the direction of CGX Energy i.e., CGX Energy and Avanti Energy go up and down completely randomly.

Pair Corralation between CGX Energy and Avanti Energy

Assuming the 90 days horizon CGX Energy is expected to generate 2.28 times less return on investment than Avanti Energy. But when comparing it to its historical volatility, CGX Energy is 1.07 times less risky than Avanti Energy. It trades about 0.04 of its potential returns per unit of risk. Avanti Energy is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  6.40  in Avanti Energy on December 19, 2024 and sell it today you would earn a total of  1.60  from holding Avanti Energy or generate 25.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

CGX Energy  vs.  Avanti Energy

CGX Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CGX Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, CGX Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Avanti Energy

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Avanti Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Avanti Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CGX Energy and Avanti Energy

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

The idea behind CGX Energy and Avanti 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.