Correlation Between MEG Energy and Avanti Energy

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

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

Diversification Opportunities for MEG Energy and Avanti Energy

0.08

Correlation Coefficient

MEG Energy  Avanti Energy

Significant diversification

The 3 months correlation between MEG and Avanti is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding MEG Energy Corp and Avanti Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avanti Energy and MEG Energy 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 MEG Energy Corp are associated (or correlated) with Avanti Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avanti Energy has no effect on the direction of MEG Energy i.e., MEG Energy and Avanti Energy go up and down completely randomly.

Pair Corralation between MEG Energy and Avanti Energy

Assuming the 90 days horizon MEG Energy Corp is expected to generate 0.35 times more return on investment than Avanti Energy. However, MEG Energy Corp is 2.89 times less risky than Avanti Energy. It trades about -0.02 of its potential returns per unit of risk. Avanti Energy is currently generating about -0.14 per unit of risk. If you would invest  1,874  in MEG Energy Corp on August 31, 2024 and sell it today you would lose (84.00) from holding MEG Energy Corp or give up 4.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

MEG Energy Corp  vs.  Avanti Energy

MEG Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MEG Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, MEG Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Avanti Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avanti Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with MEG Energy and Avanti Energy

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

The idea behind MEG Energy Corp and Avanti Energy 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.