Correlation Between Imperial Oil and Shell PLC

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

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

Diversification Opportunities for Imperial Oil and Shell PLC

0.16

Correlation Coefficient

Imperial Oil  Shell PLC

Average diversification

The 3 months correlation between Imperial and Shell is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Oil and Shell PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC 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 Shell PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell PLC ADR has no effect on the direction of Imperial Oil i.e., Imperial Oil and Shell PLC go up and down completely randomly.

Pair Corralation between Imperial Oil and Shell PLC

Considering the 90-day investment horizon Imperial Oil is expected to generate 1.37 times more return on investment than Shell PLC. However, Imperial Oil is 1.37 times more volatile than Shell PLC ADR. It trades about -0.01 of its potential returns per unit of risk. Shell PLC ADR is currently generating about -0.1 per unit of risk. If you would invest  7,477  in Imperial Oil on August 30, 2024 and sell it today you would lose (163.00) from holding Imperial Oil or give up 2.18% of portfolio value over 90 days.

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

Imperial Oil  vs.  Shell PLC ADR

Imperial Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Imperial Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Imperial Oil is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Shell PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shell PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Imperial Oil and Shell PLC

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

The idea behind Imperial Oil and Shell PLC 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.

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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.