Correlation Between Cenovus Energy and BP PLC
Can any of the company-specific risk be diversified away by investing in both Cenovus Energy and BP PLC 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 Energy and BP PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cenovus Energy and BP PLC ADR, you can compare the effects of market volatilities on Cenovus Energy and BP PLC 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 Energy with a short position of BP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cenovus Energy and BP PLC.
Diversification Opportunities for Cenovus Energy and BP PLC
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Cenovus and BP PLC is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Cenovus Energy and BP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP PLC ADR and Cenovus 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 Cenovus Energy are associated (or correlated) with BP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP PLC ADR has no effect on the direction of Cenovus Energy i.e., Cenovus Energy and BP PLC go up and down completely randomly.
Pair Corralation between Cenovus Energy and BP PLC
Considering the 90-day investment horizon Cenovus Energy is expected to generate 1.26 times more return on investment than BP PLC. However, Cenovus Energy is 1.26 times more volatile than BP PLC ADR. It trades about 0.25 of its potential returns per unit of risk. BP PLC ADR is currently generating about 0.09 per unit of risk. If you would invest 1,982 in Cenovus Energy on January 24, 2024 and sell it today you would earn a total of 128.00 from holding Cenovus Energy or generate 6.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cenovus Energy vs. BP PLC ADR
Performance |
| Timeline |
| Cenovus Energy |
| BP PLC ADR |
Cenovus Energy and BP PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cenovus Energy and BP PLC
The main advantage of trading using opposite Cenovus Energy and BP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cenovus Energy position performs unexpectedly, BP PLC 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 BP PLC will offset losses from the drop in BP PLC's long position.The idea behind Cenovus Energy and BP PLC ADR 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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