Correlation Between Cenovus Energy and CHEVRON CDR

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

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

Diversification Opportunities for Cenovus Energy and CHEVRON CDR

-0.23

Correlation Coefficient

Cenovus Energy  CHEVRON CDR

Very good diversification

The 3 months correlation between Cenovus and CHEVRON is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Cenovus Energy and CHEVRON CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHEVRON CDR and Cenovus 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 Cenovus Energy are associated (or correlated) with CHEVRON CDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHEVRON CDR has no effect on the direction of Cenovus Energy i.e., Cenovus Energy and CHEVRON CDR go up and down completely randomly.

Pair Corralation between Cenovus Energy and CHEVRON CDR

Assuming the 90 days trading horizon Cenovus Energy is expected to under-perform the CHEVRON CDR. In addition to that, Cenovus Energy is 1.46 times more volatile than CHEVRON CDR. It trades about -0.01 of its total potential returns per unit of risk. CHEVRON CDR is currently generating about 0.17 per unit of volatility. If you would invest  1,884  in CHEVRON CDR on December 23, 2024 and sell it today you would earn a total of  299.00  from holding CHEVRON CDR or generate 15.87% return on investment over 90 days.

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

Cenovus Energy  vs.  CHEVRON CDR

Cenovus Energy

Risk-Adjusted Performance

Very Weak

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

CHEVRON CDR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHEVRON CDR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, CHEVRON CDR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cenovus Energy and CHEVRON CDR

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

The idea behind Cenovus Energy and CHEVRON CDR 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.