Correlation Between Imperial Oil and Suncor Energy

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

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

Diversification Opportunities for Imperial Oil and Suncor Energy

0.8

Correlation Coefficient

Imperial Oil  Suncor Energy

Very poor diversification

The 3 months correlation between Imperial and Suncor is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Oil and Suncor Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suncor Energy and Imperial Oil 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 Imperial Oil are associated (or correlated) with Suncor Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suncor Energy has no effect on the direction of Imperial Oil i.e., Imperial Oil and Suncor Energy go up and down completely randomly.

Pair Corralation between Imperial Oil and Suncor Energy

Considering the 90-day investment horizon Imperial Oil is expected to under-perform the Suncor Energy. In addition to that, Imperial Oil is 1.66 times more volatile than Suncor Energy. It trades about -0.3 of its total potential returns per unit of risk. Suncor Energy is currently generating about -0.47 per unit of volatility. If you would invest  4,039  in Suncor Energy on September 19, 2024 and sell it today you would lose (455.00) from holding Suncor Energy or give up 11.27% of portfolio value over 90 days.

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

Imperial Oil  vs.  Suncor Energy

Imperial Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Imperial Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Imperial Oil is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Suncor Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Suncor Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Suncor Energy is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Imperial Oil and Suncor Energy

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

The idea behind Imperial Oil and Suncor 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.

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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.