Correlation Between Pine Cliff and Vermilion Energy

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

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

Diversification Opportunities for Pine Cliff and Vermilion Energy

-0.23

Correlation Coefficient

Pine Cliff  Vermilion Energy

Very good diversification

The 3 months correlation between Pine and Vermilion is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Pine Cliff Energy and Vermilion Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vermilion Energy and Pine Cliff 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 Pine Cliff Energy 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 Pine Cliff i.e., Pine Cliff and Vermilion Energy go up and down completely randomly.

Pair Corralation between Pine Cliff and Vermilion Energy

Assuming the 90 days trading horizon Pine Cliff Energy is expected to generate 1.03 times more return on investment than Vermilion Energy. However, Pine Cliff is 1.03 times more volatile than Vermilion Energy. It trades about -0.02 of its potential returns per unit of risk. Vermilion Energy is currently generating about -0.03 per unit of risk. If you would invest  141.00  in Pine Cliff Energy on September 5, 2024 and sell it today you would lose (50.00) from holding Pine Cliff Energy or give up 35.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Pine Cliff Energy  vs.  Vermilion Energy

Pine Cliff Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pine Cliff Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Pine Cliff 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

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vermilion Energy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Vermilion Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pine Cliff and Vermilion Energy

The main advantage of trading using opposite Pine Cliff and Vermilion Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pine Cliff 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 Pine Cliff Energy 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.