Correlation Between Baytex Energy and Whitecap Resources

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

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

Diversification Opportunities for Baytex Energy and Whitecap Resources

0.29

Correlation Coefficient

Baytex Energy  Whitecap Resources

Modest diversification

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

Pair Corralation between Baytex Energy and Whitecap Resources

Assuming the 90 days trading horizon Baytex Energy Corp is expected to under-perform the Whitecap Resources. In addition to that, Baytex Energy is 1.48 times more volatile than Whitecap Resources. It trades about -0.06 of its total potential returns per unit of risk. Whitecap Resources is currently generating about 0.05 per unit of volatility. If you would invest  984.00  in Whitecap Resources on September 1, 2024 and sell it today you would earn a total of  39.00  from holding Whitecap Resources or generate 3.96% return on investment over 90 days.

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

Baytex Energy Corp  vs.  Whitecap Resources

Baytex Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baytex Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Whitecap Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Whitecap Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Whitecap Resources is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Baytex Energy and Whitecap Resources

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

The idea behind Baytex Energy Corp and Whitecap Resources 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .