Correlation Between Valeura Energy and Canadian Overseas

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

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

Diversification Opportunities for Valeura Energy and Canadian Overseas

0.42

Correlation Coefficient

Valeura Energy  Canadian Overseas

Very weak diversification

The 3 months correlation between Valeura and Canadian is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Valeura Energy and Canadian Overseas Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Overseas and Valeura 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 Valeura Energy 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 Valeura Energy i.e., Valeura Energy and Canadian Overseas go up and down completely randomly.

Pair Corralation between Valeura Energy and Canadian Overseas

Assuming the 90 days horizon Valeura Energy is expected to generate 7.81 times less return on investment than Canadian Overseas. But when comparing it to its historical volatility, Valeura Energy is 14.92 times less risky than Canadian Overseas. It trades about 0.25 of its potential returns per unit of risk. Canadian Overseas Petroleum is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  0.28  in Canadian Overseas Petroleum on February 5, 2024 and sell it today you would lose (0.07) from holding Canadian Overseas Petroleum or give up 25.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.67%
Values	Daily Returns

Valeura Energy  vs.  Canadian Overseas Petroleum

Valeura Energy

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Valeura Energy are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Valeura Energy reported solid returns over the last few months and may actually be approaching a breakup point.

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 Valeura Energy and Canadian Overseas

The main advantage of trading using opposite Valeura Energy and Canadian Overseas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Valeura Energy 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 Valeura Energy 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.

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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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.