Correlation Between Capricorn Energy and Cardinal Energy

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

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

Diversification Opportunities for Capricorn Energy and Cardinal Energy

0.41

Correlation Coefficient

Capricorn Energy  Cardinal Energy

Very weak diversification

The 3 months correlation between Capricorn and Cardinal is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Capricorn Energy PLC and Cardinal Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cardinal Energy and Capricorn 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 Capricorn Energy PLC are associated (or correlated) with Cardinal Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cardinal Energy has no effect on the direction of Capricorn Energy i.e., Capricorn Energy and Cardinal Energy go up and down completely randomly.

Pair Corralation between Capricorn Energy and Cardinal Energy

Assuming the 90 days horizon Capricorn Energy PLC is expected to generate 1.77 times more return on investment than Cardinal Energy. However, Capricorn Energy is 1.77 times more volatile than Cardinal Energy. It trades about 0.02 of its potential returns per unit of risk. Cardinal Energy is currently generating about -0.05 per unit of risk. If you would invest  595.00  in Capricorn Energy PLC on September 4, 2024 and sell it today you would earn a total of  11.00  from holding Capricorn Energy PLC or generate 1.85% return on investment over 90 days.

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

Capricorn Energy PLC  vs.  Cardinal Energy

Capricorn Energy PLC

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Capricorn Energy PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Capricorn Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cardinal Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cardinal Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Cardinal Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Capricorn Energy and Cardinal Energy

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

The idea behind Capricorn Energy PLC and Cardinal 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.

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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.