Correlation Between South West and Canadian Overseas

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

By analyzing existing cross correlation between South West Pinnacle and Canadian Overseas Petroleum, you can compare the effects of market volatilities on South West and Canadian Overseas 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 South West with a short position of Canadian Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of South West and Canadian Overseas.

Diversification Opportunities for South West and Canadian Overseas

-0.29

Correlation Coefficient

South West  Canadian Overseas

Very good diversification

The 3 months correlation between South and Canadian is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding South West Pinnacle and Canadian Overseas Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Overseas and South West 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 South West Pinnacle are associated (or correlated) with Canadian Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Overseas has no effect on the direction of South West i.e., South West and Canadian Overseas go up and down completely randomly.

Pair Corralation between South West and Canadian Overseas

Assuming the 90 days trading horizon South West Pinnacle is expected to under-perform the Canadian Overseas. But the stock apears to be less risky and, when comparing its historical volatility, South West Pinnacle is 25.8 times less risky than Canadian Overseas. The stock trades about -0.13 of its potential returns per unit of risk. The Canadian Overseas Petroleum is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  0.37  in Canadian Overseas Petroleum on February 5, 2024 and sell it today you would lose (0.16) from holding Canadian Overseas Petroleum or give up 43.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	86.36%
Values	Daily Returns

South West Pinnacle  vs.  Canadian Overseas Petroleum

South West Pinnacle

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days South West Pinnacle 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 technical indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Canadian Overseas

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Overseas Petroleum are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Canadian Overseas reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with South West and Canadian Overseas

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

The idea behind South West Pinnacle and Canadian Overseas Petroleum 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.