Correlation Between Canadian Natural and Baytex Energy

Can any of the company-specific risk be diversified away by investing in both Canadian Natural and Baytex 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 Canadian Natural and Baytex Energy 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 Baytex Energy Corp, you can compare the effects of market volatilities on Canadian Natural and Baytex 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 Canadian Natural with a short position of Baytex Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Natural and Baytex Energy.

Diversification Opportunities for Canadian Natural and Baytex Energy

0.8

Correlation Coefficient

Canadian Natural  Baytex Energy

Very poor diversification

The 3 months correlation between Canadian and Baytex is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Natural Resources and Baytex Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baytex Energy Corp 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 Baytex Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baytex Energy Corp has no effect on the direction of Canadian Natural i.e., Canadian Natural and Baytex Energy go up and down completely randomly.

Pair Corralation between Canadian Natural and Baytex Energy

Considering the 90-day investment horizon Canadian Natural Resources is expected to generate 0.56 times more return on investment than Baytex Energy. However, Canadian Natural Resources is 1.78 times less risky than Baytex Energy. It trades about 0.04 of its potential returns per unit of risk. Baytex Energy Corp is currently generating about -0.03 per unit of risk. If you would invest  2,986  in Canadian Natural Resources on December 29, 2024 and sell it today you would earn a total of  109.00  from holding Canadian Natural Resources or generate 3.65% return on investment over 90 days.

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

Canadian Natural Resources  vs.  Baytex Energy Corp

Canadian Natural Res

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Natural Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Canadian Natural is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

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 rather sound basic indicators, Baytex Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Canadian Natural and Baytex Energy

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

The idea behind Canadian Natural Resources and Baytex 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.