Correlation Between Imperial Oil and TC Energy

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

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

Diversification Opportunities for Imperial Oil and TC Energy

0.77

Correlation Coefficient

Imperial Oil  TC Energy

Poor diversification

The 3 months correlation between Imperial and TRP is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Oil and TC Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TC Energy 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 TC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TC Energy Corp has no effect on the direction of Imperial Oil i.e., Imperial Oil and TC Energy go up and down completely randomly.

Pair Corralation between Imperial Oil and TC Energy

Assuming the 90 days trading horizon Imperial Oil is expected to generate 1.26 times more return on investment than TC Energy. However, Imperial Oil is 1.26 times more volatile than TC Energy Corp. It trades about 0.03 of its potential returns per unit of risk. TC Energy Corp is currently generating about -0.14 per unit of risk. If you would invest  10,226  in Imperial Oil on September 12, 2024 and sell it today you would earn a total of  83.00  from holding Imperial Oil or generate 0.81% 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.  TC Energy Corp

Imperial Oil

Risk-Adjusted Performance

11 of 100

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 unfluctuating basic indicators, Imperial Oil displayed solid returns over the last few months and may actually be approaching a breakup point.

TC Energy Corp

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TC Energy Corp are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, TC Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Imperial Oil and TC Energy

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

The idea behind Imperial Oil and TC Energy 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.