Correlation Between Vermilion Energy and Vital Energy

Can any of the company-specific risk be diversified away by investing in both Vermilion Energy and Vital 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 Vital 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 Vital Energy, you can compare the effects of market volatilities on Vermilion Energy and Vital 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 Vital Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vermilion Energy and Vital Energy.

Diversification Opportunities for Vermilion Energy and Vital Energy

0.6

Correlation Coefficient

Vermilion Energy  Vital Energy

Poor diversification

The 3 months correlation between Vermilion and Vital is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Vermilion Energy and Vital Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vital Energy 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 Vital Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vital Energy has no effect on the direction of Vermilion Energy i.e., Vermilion Energy and Vital Energy go up and down completely randomly.

Pair Corralation between Vermilion Energy and Vital Energy

Considering the 90-day investment horizon Vermilion Energy is expected to under-perform the Vital Energy. But the stock apears to be less risky and, when comparing its historical volatility, Vermilion Energy is 1.54 times less risky than Vital Energy. The stock trades about -0.14 of its potential returns per unit of risk. The Vital Energy is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  3,283  in Vital Energy on November 29, 2024 and sell it today you would lose (497.00) from holding Vital Energy or give up 15.14% of portfolio value over 90 days.

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

Vermilion Energy  vs.  Vital Energy

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 unsteady performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Vital Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vital Energy 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 essential indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Vermilion Energy and Vital Energy

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

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