Correlation Between Imperial Oil and TransAlta Corp

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

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

Diversification Opportunities for Imperial Oil and TransAlta Corp

0.66

Correlation Coefficient

Imperial Oil  TransAlta Corp

Poor diversification

The 3 months correlation between Imperial and TransAlta is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Oil and TransAlta Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TransAlta Corp and Imperial Oil 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 Imperial Oil are associated (or correlated) with TransAlta Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TransAlta Corp has no effect on the direction of Imperial Oil i.e., Imperial Oil and TransAlta Corp go up and down completely randomly.

Pair Corralation between Imperial Oil and TransAlta Corp

Assuming the 90 days trading horizon Imperial Oil is expected to generate 3.82 times less return on investment than TransAlta Corp. But when comparing it to its historical volatility, Imperial Oil is 1.12 times less risky than TransAlta Corp. It trades about 0.08 of its potential returns per unit of risk. TransAlta Corp is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,191  in TransAlta Corp on September 4, 2024 and sell it today you would earn a total of  438.00  from holding TransAlta Corp or generate 36.78% return on investment over 90 days.

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

Imperial Oil  vs.  TransAlta Corp

Imperial Oil

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Oil are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Imperial Oil may actually be approaching a critical reversion point that can send shares even higher in January 2025.

TransAlta Corp

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TransAlta Corp are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, TransAlta Corp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Imperial Oil and TransAlta Corp

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

The idea behind Imperial Oil and TransAlta 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.