Correlation Between Sage Potash and Vermilion Energy

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

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

Diversification Opportunities for Sage Potash and Vermilion Energy

0.37

Correlation Coefficient

Sage Potash  Vermilion Energy

Weak diversification

The 3 months correlation between Sage and Vermilion is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Sage Potash Corp and Vermilion Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vermilion Energy and Sage Potash 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 Sage Potash Corp are associated (or correlated) with Vermilion Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vermilion Energy has no effect on the direction of Sage Potash i.e., Sage Potash and Vermilion Energy go up and down completely randomly.

Pair Corralation between Sage Potash and Vermilion Energy

Assuming the 90 days trading horizon Sage Potash Corp is expected to generate 3.09 times more return on investment than Vermilion Energy. However, Sage Potash is 3.09 times more volatile than Vermilion Energy. It trades about 0.08 of its potential returns per unit of risk. Vermilion Energy is currently generating about -0.12 per unit of risk. If you would invest  19.00  in Sage Potash Corp on November 28, 2024 and sell it today you would earn a total of  4.00  from holding Sage Potash Corp or generate 21.05% return on investment over 90 days.

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

Sage Potash Corp  vs.  Vermilion Energy

Sage Potash Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sage Potash Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical and fundamental indicators, Sage Potash showed solid returns over the last few months and may actually be approaching a breakup point.

Vermilion Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vermilion Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Sage Potash and Vermilion Energy

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

The idea behind Sage Potash Corp and Vermilion 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.

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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 Stocks Directory module to find actively traded stocks across global markets.