Correlation Between Imperial Oil and Equinor ASA

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

By analyzing existing cross correlation between Imperial Oil and Equinor ASA ADR, you can compare the effects of market volatilities on Imperial Oil and Equinor ASA 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 Equinor ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Imperial Oil and Equinor ASA.

Diversification Opportunities for Imperial Oil and Equinor ASA

0.44

Correlation Coefficient

Imperial Oil  Equinor ASA

Very weak diversification

The 3 months correlation between Imperial and Equinor is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Oil and Equinor ASA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor ASA ADR 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 Equinor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equinor ASA ADR has no effect on the direction of Imperial Oil i.e., Imperial Oil and Equinor ASA go up and down completely randomly.

Pair Corralation between Imperial Oil and Equinor ASA

Considering the 90-day investment horizon Imperial Oil is expected to generate 0.95 times more return on investment than Equinor ASA. However, Imperial Oil is 1.05 times less risky than Equinor ASA. It trades about 0.14 of its potential returns per unit of risk. Equinor ASA ADR is currently generating about 0.11 per unit of risk. If you would invest  6,066  in Imperial Oil on December 30, 2024 and sell it today you would earn a total of  1,018  from holding Imperial Oil or generate 16.78% return on investment over 90 days.

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

Imperial Oil  vs.  Equinor ASA ADR

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.

Equinor ASA ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Equinor ASA ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Equinor ASA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Imperial Oil and Equinor ASA

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

The idea behind Imperial Oil and Equinor ASA ADR 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.