Correlation Between Cenovus and GMO Internet

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

By analyzing existing cross correlation between Cenovus Energy 525 and GMO Internet, you can compare the effects of market volatilities on Cenovus and GMO Internet 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 Cenovus with a short position of GMO Internet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cenovus and GMO Internet.

Diversification Opportunities for Cenovus and GMO Internet

-0.03

Correlation Coefficient

Cenovus  GMO Internet

Good diversification

The 3 months correlation between Cenovus and GMO is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Cenovus Energy 525 and GMO Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMO Internet and Cenovus 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 Cenovus Energy 525 are associated (or correlated) with GMO Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMO Internet has no effect on the direction of Cenovus i.e., Cenovus and GMO Internet go up and down completely randomly.

Pair Corralation between Cenovus and GMO Internet

Assuming the 90 days trading horizon Cenovus is expected to generate 22.06 times less return on investment than GMO Internet. But when comparing it to its historical volatility, Cenovus Energy 525 is 1.59 times less risky than GMO Internet. It trades about 0.01 of its potential returns per unit of risk. GMO Internet is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,748  in GMO Internet on December 23, 2024 and sell it today you would earn a total of  437.00  from holding GMO Internet or generate 25.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	46.77%
Values	Daily Returns

Cenovus Energy 525  vs.  GMO Internet

Cenovus Energy 525

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cenovus Energy 525 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Cenovus is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

GMO Internet

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, GMO Internet reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cenovus and GMO Internet

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

The idea behind Cenovus Energy 525 and GMO Internet 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.