Correlation Between Teekay and Natural Resource

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

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

Diversification Opportunities for Teekay and Natural Resource

0.07

Correlation Coefficient

Teekay  Natural Resource

Significant diversification

The 3 months correlation between Teekay and Natural is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Teekay and Natural Resource Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Resource Partners and Teekay 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 Teekay are associated (or correlated) with Natural Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Resource Partners has no effect on the direction of Teekay i.e., Teekay and Natural Resource go up and down completely randomly.

Pair Corralation between Teekay and Natural Resource

Allowing for the 90-day total investment horizon Teekay is expected to generate 1.26 times less return on investment than Natural Resource. But when comparing it to its historical volatility, Teekay is 1.21 times less risky than Natural Resource. It trades about 0.05 of its potential returns per unit of risk. Natural Resource Partners is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  10,129  in Natural Resource Partners on December 19, 2024 and sell it today you would earn a total of  649.00  from holding Natural Resource Partners or generate 6.41% return on investment over 90 days.

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

Teekay  vs.  Natural Resource Partners

Teekay

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Teekay are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward-looking signals, Teekay may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Natural Resource Partners

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Resource Partners are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Natural Resource may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Teekay and Natural Resource

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

The idea behind Teekay and Natural Resource Partners 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.