Correlation Between Paramount Resources and Pembina Pipeline

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

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

Diversification Opportunities for Paramount Resources and Pembina Pipeline

-0.76

Correlation Coefficient

Paramount Resources  Pembina Pipeline

Pay attention - limited upside

The 3 months correlation between Paramount and Pembina is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Paramount Resources and Pembina Pipeline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pembina Pipeline and Paramount Resources 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 Paramount Resources are associated (or correlated) with Pembina Pipeline. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pembina Pipeline has no effect on the direction of Paramount Resources i.e., Paramount Resources and Pembina Pipeline go up and down completely randomly.

Pair Corralation between Paramount Resources and Pembina Pipeline

Assuming the 90 days horizon Paramount Resources is expected to generate 32.98 times more return on investment than Pembina Pipeline. However, Paramount Resources is 32.98 times more volatile than Pembina Pipeline. It trades about 0.09 of its potential returns per unit of risk. Pembina Pipeline is currently generating about 0.22 per unit of risk. If you would invest  2,160  in Paramount Resources on October 9, 2024 and sell it today you would earn a total of  69.00  from holding Paramount Resources or generate 3.19% return on investment over 90 days.

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

Paramount Resources  vs.  Pembina Pipeline

Paramount Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Paramount Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Paramount Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pembina Pipeline

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Paramount Resources and Pembina Pipeline

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

The idea behind Paramount Resources and Pembina Pipeline 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.