Correlation Between Cenovus Energy and Imperial Oil

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

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

Diversification Opportunities for Cenovus Energy and Imperial Oil

0.04

Correlation Coefficient

Cenovus Energy  Imperial Oil

Significant diversification

The 3 months correlation between Cenovus and Imperial is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Cenovus Energy and Imperial Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Oil 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 Imperial Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Oil has no effect on the direction of Cenovus Energy i.e., Cenovus Energy and Imperial Oil go up and down completely randomly.

Pair Corralation between Cenovus Energy and Imperial Oil

Considering the 90-day investment horizon Cenovus Energy is expected to under-perform the Imperial Oil. In addition to that, Cenovus Energy is 1.15 times more volatile than Imperial Oil. It trades about -0.04 of its total potential returns per unit of risk. Imperial Oil is currently generating about 0.14 per unit of volatility. If you would invest  6,066  in Imperial Oil on December 29, 2024 and sell it today you would earn a total of  1,018  from holding Imperial Oil or generate 16.78% return on investment over 90 days.

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

Cenovus Energy  vs.  Imperial Oil

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

Imperial Oil

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Oil are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain primary indicators, Imperial Oil displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cenovus Energy and Imperial Oil

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

The idea behind Cenovus Energy and Imperial 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.