Correlation Between Vermilion Energy and Baytex Energy

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

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

Diversification Opportunities for Vermilion Energy and Baytex Energy

0.97

Correlation Coefficient

Vermilion Energy  Baytex Energy

Almost no diversification

The 3 months correlation between Vermilion and Baytex is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vermilion Energy and Baytex Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baytex Energy Corp and Vermilion 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 Vermilion Energy are associated (or correlated) with Baytex Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baytex Energy Corp has no effect on the direction of Vermilion Energy i.e., Vermilion Energy and Baytex Energy go up and down completely randomly.

Pair Corralation between Vermilion Energy and Baytex Energy

Considering the 90-day investment horizon Vermilion Energy is expected to under-perform the Baytex Energy. But the stock apears to be less risky and, when comparing its historical volatility, Vermilion Energy is 1.11 times less risky than Baytex Energy. The stock trades about -0.04 of its potential returns per unit of risk. The Baytex Energy Corp is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  244.00  in Baytex Energy Corp on December 29, 2024 and sell it today you would lose (17.00) from holding Baytex Energy Corp or give up 6.97% of portfolio value over 90 days.

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

Vermilion Energy  vs.  Baytex Energy Corp

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 latest unsteady performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Baytex Energy Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Baytex Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Baytex Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vermilion Energy and Baytex Energy

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

The idea behind Vermilion Energy and Baytex Energy Corp 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.