Correlation Between Prairie Provident and MEG Energy

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

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

Diversification Opportunities for Prairie Provident and MEG Energy

0.2

Correlation Coefficient

Prairie Provident  MEG Energy

Modest diversification

The 3 months correlation between Prairie and MEG is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Prairie Provident Resources and MEG Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MEG Energy Corp and Prairie Provident 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 Prairie Provident Resources are associated (or correlated) with MEG Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MEG Energy Corp has no effect on the direction of Prairie Provident i.e., Prairie Provident and MEG Energy go up and down completely randomly.

Pair Corralation between Prairie Provident and MEG Energy

Assuming the 90 days trading horizon Prairie Provident Resources is expected to generate 3.64 times more return on investment than MEG Energy. However, Prairie Provident is 3.64 times more volatile than MEG Energy Corp. It trades about 0.1 of its potential returns per unit of risk. MEG Energy Corp is currently generating about 0.09 per unit of risk. If you would invest  3.00  in Prairie Provident Resources on December 20, 2024 and sell it today you would earn a total of  1.00  from holding Prairie Provident Resources or generate 33.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Prairie Provident Resources  vs.  MEG Energy Corp

Prairie Provident

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prairie Provident Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Prairie Provident displayed solid returns over the last few months and may actually be approaching a breakup point.

MEG Energy Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MEG Energy Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, MEG Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prairie Provident and MEG Energy

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

The idea behind Prairie Provident Resources and MEG 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.