Correlation Between TRI Pointe and Imperial Oil

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

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

Diversification Opportunities for TRI Pointe and Imperial Oil

0.88

Correlation Coefficient

TRI Pointe  Imperial Oil

Very poor diversification

The 3 months correlation between TRI and Imperial is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding TRI Pointe Homes and Imperial Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Oil and TRI Pointe 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 TRI Pointe Homes are associated (or correlated) with Imperial Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Oil has no effect on the direction of TRI Pointe i.e., TRI Pointe and Imperial Oil go up and down completely randomly.

Pair Corralation between TRI Pointe and Imperial Oil

Considering the 90-day investment horizon TRI Pointe Homes is expected to generate 1.14 times more return on investment than Imperial Oil. However, TRI Pointe is 1.14 times more volatile than Imperial Oil. It trades about 0.06 of its potential returns per unit of risk. Imperial Oil is currently generating about 0.04 per unit of risk. If you would invest  2,088  in TRI Pointe Homes on October 7, 2024 and sell it today you would earn a total of  1,511  from holding TRI Pointe Homes or generate 72.37% return on investment over 90 days.

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

TRI Pointe Homes  vs.  Imperial Oil

TRI Pointe Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TRI Pointe Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Imperial Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Imperial Oil 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 primary indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with TRI Pointe and Imperial Oil

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

The idea behind TRI Pointe Homes and Imperial Oil 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.