Correlation Between Suncor Energy and Cenovus Energy

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

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

Diversification Opportunities for Suncor Energy and Cenovus Energy

0.53

Correlation Coefficient

Suncor Energy  Cenovus Energy

Very weak diversification

The 3 months correlation between Suncor and Cenovus is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Suncor Energy and Cenovus Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cenovus Energy and Suncor 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 Suncor Energy are associated (or correlated) with Cenovus Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cenovus Energy has no effect on the direction of Suncor Energy i.e., Suncor Energy and Cenovus Energy go up and down completely randomly.

Pair Corralation between Suncor Energy and Cenovus Energy

Assuming the 90 days horizon Suncor Energy is expected to generate 0.7 times more return on investment than Cenovus Energy. However, Suncor Energy is 1.44 times less risky than Cenovus Energy. It trades about -0.06 of its potential returns per unit of risk. Cenovus Energy is currently generating about -0.05 per unit of risk. If you would invest  5,715  in Suncor Energy on November 20, 2024 and sell it today you would lose (110.00) from holding Suncor Energy or give up 1.92% of portfolio value over 90 days.

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

Suncor Energy  vs.  Cenovus Energy

Suncor Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Suncor Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Suncor Energy is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Cenovus Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cenovus Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Cenovus Energy is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Suncor Energy and Cenovus Energy

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

The idea behind Suncor Energy and Cenovus 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 CEOs Directory module to screen CEOs from public companies around the world.