Correlation Between MEG Energy and Vermilion Energy

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

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

Diversification Opportunities for MEG Energy and Vermilion Energy

0.64

Correlation Coefficient

MEG Energy  Vermilion Energy

Poor diversification

The 3 months correlation between MEG and Vermilion is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding MEG Energy Corp and Vermilion Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vermilion Energy and MEG 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 MEG Energy Corp are associated (or correlated) with Vermilion Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vermilion Energy has no effect on the direction of MEG Energy i.e., MEG Energy and Vermilion Energy go up and down completely randomly.

Pair Corralation between MEG Energy and Vermilion Energy

Assuming the 90 days trading horizon MEG Energy is expected to generate 182.4 times less return on investment than Vermilion Energy. In addition to that, MEG Energy is 1.02 times more volatile than Vermilion Energy. It trades about 0.0 of its total potential returns per unit of risk. Vermilion Energy is currently generating about 0.09 per unit of volatility. If you would invest  1,297  in Vermilion Energy on September 3, 2024 and sell it today you would earn a total of  140.00  from holding Vermilion Energy or generate 10.79% return on investment over 90 days.

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

MEG Energy Corp  vs.  Vermilion Energy

MEG Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vermilion Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vermilion Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Vermilion Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with MEG Energy and Vermilion Energy

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

The idea behind MEG Energy Corp and Vermilion 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.