Correlation Between Canadian Natural and Indus Gas

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

Diversification Opportunities for Canadian Natural and Indus Gas

0.43

Correlation Coefficient

Canadian Natural  Indus Gas

Very weak diversification

The 3 months correlation between Canadian and Indus is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Natural Resources and Indus Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indus Gas 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 Indus Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indus Gas has no effect on the direction of Canadian Natural i.e., Canadian Natural and Indus Gas go up and down completely randomly.

Pair Corralation between Canadian Natural and Indus Gas

Assuming the 90 days horizon Canadian Natural is expected to generate 342.84 times less return on investment than Indus Gas. But when comparing it to its historical volatility, Canadian Natural Resources is 63.2 times less risky than Indus Gas. It trades about 0.02 of its potential returns per unit of risk. Indus Gas is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  8.80  in Indus Gas on December 29, 2024 and sell it today you would lose (3.70) from holding Indus Gas or give up 42.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Canadian Natural Resources  vs.  Indus Gas

Canadian Natural Res

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Natural Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Canadian Natural is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Indus Gas

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Indus Gas are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Indus Gas reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Natural and Indus Gas

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

The idea behind Canadian Natural Resources and Indus Gas 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.