Correlation Between Empire Petroleum and Cenovus Energy

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

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

Diversification Opportunities for Empire Petroleum and Cenovus Energy

0.06

Correlation Coefficient

Empire Petroleum  Cenovus Energy

Significant diversification

The 3 months correlation between Empire and Cenovus is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Empire Petroleum Corp and Cenovus Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cenovus Energy and Empire Petroleum 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 Empire Petroleum Corp are associated (or correlated) with Cenovus Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cenovus Energy has no effect on the direction of Empire Petroleum i.e., Empire Petroleum and Cenovus Energy go up and down completely randomly.

Pair Corralation between Empire Petroleum and Cenovus Energy

Allowing for the 90-day total investment horizon Empire Petroleum Corp is expected to under-perform the Cenovus Energy. In addition to that, Empire Petroleum is 1.77 times more volatile than Cenovus Energy. It trades about -0.04 of its total potential returns per unit of risk. Cenovus Energy is currently generating about -0.02 per unit of volatility. If you would invest  1,469  in Cenovus Energy on December 28, 2024 and sell it today you would lose (60.00) from holding Cenovus Energy or give up 4.08% of portfolio value over 90 days.

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

Empire Petroleum Corp  vs.  Cenovus Energy

Empire Petroleum Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Empire Petroleum Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

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.

Pair Trading with Empire Petroleum and Cenovus Energy

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

The idea behind Empire Petroleum Corp and Cenovus 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..