Correlation Between Canadian Natural and Capital Power

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

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

Diversification Opportunities for Canadian Natural and Capital Power

-0.49

Correlation Coefficient

Canadian Natural  Capital Power

Very good diversification

The 3 months correlation between Canadian and Capital is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Natural Resources and Capital Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Power and Canadian Natural 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 Canadian Natural Resources are associated (or correlated) with Capital Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Power has no effect on the direction of Canadian Natural i.e., Canadian Natural and Capital Power go up and down completely randomly.

Pair Corralation between Canadian Natural and Capital Power

Assuming the 90 days trading horizon Canadian Natural Resources is expected to under-perform the Capital Power. But the stock apears to be less risky and, when comparing its historical volatility, Canadian Natural Resources is 1.82 times less risky than Capital Power. The stock trades about -0.22 of its potential returns per unit of risk. The Capital Power is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6,259  in Capital Power on September 28, 2024 and sell it today you would earn a total of  143.00  from holding Capital Power or generate 2.28% return on investment over 90 days.

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

Canadian Natural Resources  vs.  Capital Power

Canadian Natural Res

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Canadian Natural is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Capital Power

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Power are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Capital Power displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Natural and Capital Power

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

The idea behind Canadian Natural Resources and Capital Power 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.