Correlation Between Eni SPA and Imperial Oil

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

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

Diversification Opportunities for Eni SPA and Imperial Oil

0.74

Correlation Coefficient

Eni SPA  Imperial Oil

Poor diversification

The 3 months correlation between Eni and Imperial is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Eni SpA ADR and Imperial Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Oil and Eni SPA 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 Eni SpA ADR 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 Eni SPA i.e., Eni SPA and Imperial Oil go up and down completely randomly.

Pair Corralation between Eni SPA and Imperial Oil

Taking into account the 90-day investment horizon Eni SpA ADR is expected to generate 0.55 times more return on investment than Imperial Oil. However, Eni SpA ADR is 1.81 times less risky than Imperial Oil. It trades about 0.26 of its potential returns per unit of risk. Imperial Oil is currently generating about 0.14 per unit of risk. If you would invest  2,616  in Eni SpA ADR on December 26, 2024 and sell it today you would earn a total of  475.00  from holding Eni SpA ADR or generate 18.16% return on investment over 90 days.

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

Eni SpA ADR  vs.  Imperial Oil

Eni SpA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eni SpA ADR are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Eni SPA exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 Eni SPA and Imperial Oil

The main advantage of trading using opposite Eni SPA and Imperial Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eni SPA 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 Eni SpA ADR 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.

Check out your portfolio center.

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.