Correlation Between Extendicare and Keyera Corp

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

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

Diversification Opportunities for Extendicare and Keyera Corp

0.81

Correlation Coefficient

Extendicare  Keyera Corp

Very poor diversification

The 3 months correlation between Extendicare and Keyera is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Extendicare and Keyera Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Keyera Corp and Extendicare 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 Extendicare are associated (or correlated) with Keyera Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Keyera Corp has no effect on the direction of Extendicare i.e., Extendicare and Keyera Corp go up and down completely randomly.

Pair Corralation between Extendicare and Keyera Corp

Assuming the 90 days trading horizon Extendicare is expected to generate 1.57 times more return on investment than Keyera Corp. However, Extendicare is 1.57 times more volatile than Keyera Corp. It trades about 0.23 of its potential returns per unit of risk. Keyera Corp is currently generating about 0.25 per unit of risk. If you would invest  877.00  in Extendicare on September 5, 2024 and sell it today you would earn a total of  195.00  from holding Extendicare or generate 22.23% return on investment over 90 days.

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

Extendicare  vs.  Keyera Corp

Extendicare

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Extendicare are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Extendicare displayed solid returns over the last few months and may actually be approaching a breakup point.

Keyera Corp

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Keyera Corp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Keyera Corp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Extendicare and Keyera Corp

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

The idea behind Extendicare and Keyera Corp 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.