Correlation Between Pembina Pipeline and Paramount Resources

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

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

Diversification Opportunities for Pembina Pipeline and Paramount Resources

-0.45

Correlation Coefficient

Pembina Pipeline  Paramount Resources

Very good diversification

The 3 months correlation between Pembina and Paramount is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Pembina Pipeline Corp and Paramount Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paramount Resources and Pembina Pipeline 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 Pembina Pipeline Corp are associated (or correlated) with Paramount Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paramount Resources has no effect on the direction of Pembina Pipeline i.e., Pembina Pipeline and Paramount Resources go up and down completely randomly.

Pair Corralation between Pembina Pipeline and Paramount Resources

Assuming the 90 days trading horizon Pembina Pipeline Corp is expected to under-perform the Paramount Resources. But the stock apears to be less risky and, when comparing its historical volatility, Pembina Pipeline Corp is 2.26 times less risky than Paramount Resources. The stock trades about -0.2 of its potential returns per unit of risk. The Paramount Resources is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  3,043  in Paramount Resources on October 8, 2024 and sell it today you would earn a total of  170.00  from holding Paramount Resources or generate 5.59% return on investment over 90 days.

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

Pembina Pipeline Corp  vs.  Paramount Resources

Pembina Pipeline Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pembina Pipeline Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's essential indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Paramount Resources

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Paramount Resources are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Paramount Resources displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pembina Pipeline and Paramount Resources

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

The idea behind Pembina Pipeline Corp and Paramount Resources 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.