Correlation Between Cenovus Energy and Baytex Energy

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

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

Diversification Opportunities for Cenovus Energy and Baytex Energy

0.75

Correlation Coefficient

Cenovus Energy  Baytex Energy

Poor diversification

The 3 months correlation between Cenovus and Baytex is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Cenovus Energy and Baytex Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baytex Energy Corp 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 Baytex Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baytex Energy Corp has no effect on the direction of Cenovus Energy i.e., Cenovus Energy and Baytex Energy go up and down completely randomly.

Pair Corralation between Cenovus Energy and Baytex Energy

Assuming the 90 days trading horizon Cenovus Energy is expected to under-perform the Baytex Energy. But the stock apears to be less risky and, when comparing its historical volatility, Cenovus Energy is 1.74 times less risky than Baytex Energy. The stock trades about -0.03 of its potential returns per unit of risk. The Baytex Energy Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  393.00  in Baytex Energy Corp on September 1, 2024 and sell it today you would earn a total of  5.00  from holding Baytex Energy Corp or generate 1.27% return on investment over 90 days.

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

Cenovus Energy  vs.  Baytex Energy Corp

Cenovus Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cenovus Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating 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.

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.

Pair Trading with Cenovus Energy and Baytex Energy

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

The idea behind Cenovus Energy and Baytex Energy Corp 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.