Correlation Between Lundin Energy and Contact Energy

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

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

Diversification Opportunities for Lundin Energy and Contact Energy

-0.62

Correlation Coefficient

Lundin Energy  Contact Energy

Excellent diversification

The 3 months correlation between Lundin and Contact is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Lundin Energy AB and Contact Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Contact Energy and Lundin 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 Lundin Energy AB are associated (or correlated) with Contact Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Contact Energy has no effect on the direction of Lundin Energy i.e., Lundin Energy and Contact Energy go up and down completely randomly.

Pair Corralation between Lundin Energy and Contact Energy

Assuming the 90 days horizon Lundin Energy AB is expected to under-perform the Contact Energy. In addition to that, Lundin Energy is 1.28 times more volatile than Contact Energy Limited. It trades about -0.16 of its total potential returns per unit of risk. Contact Energy Limited is currently generating about 0.03 per unit of volatility. If you would invest  442.00  in Contact Energy Limited on September 19, 2024 and sell it today you would earn a total of  10.00  from holding Contact Energy Limited or generate 2.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Lundin Energy AB  vs.  Contact Energy Limited

Lundin Energy AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lundin Energy AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Contact Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Contact Energy Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Contact Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Lundin Energy and Contact Energy

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

The idea behind Lundin Energy AB and Contact Energy Limited 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.