Correlation Between Canadian Natural and Murphy Oil

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

Diversification Opportunities for Canadian Natural and Murphy Oil

0.66

Correlation Coefficient

Canadian Natural  Murphy Oil

Poor diversification

The 3 months correlation between Canadian and Murphy is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Natural Resources and Murphy Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Murphy Oil 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 Murphy Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Murphy Oil has no effect on the direction of Canadian Natural i.e., Canadian Natural and Murphy Oil go up and down completely randomly.

Pair Corralation between Canadian Natural and Murphy Oil

Considering the 90-day investment horizon Canadian Natural is expected to generate 1.51 times less return on investment than Murphy Oil. But when comparing it to its historical volatility, Canadian Natural Resources is 1.28 times less risky than Murphy Oil. It trades about 0.14 of its potential returns per unit of risk. Murphy Oil is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,867  in Murphy Oil on October 27, 2024 and sell it today you would earn a total of  173.00  from holding Murphy Oil or generate 6.03% return on investment over 90 days.

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

Canadian Natural Resources  vs.  Murphy Oil

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. Even with latest unsteady performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Murphy Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Murphy Oil has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Murphy Oil is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Canadian Natural and Murphy Oil

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

The idea behind Canadian Natural Resources and Murphy Oil 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.