Correlation Between Sage Potash and Imperial Oil

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

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

Diversification Opportunities for Sage Potash and Imperial Oil

-0.55

Correlation Coefficient

Sage Potash  Imperial Oil

Excellent diversification

The 3 months correlation between Sage and Imperial is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Sage Potash Corp and Imperial Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Oil and Sage Potash 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 Sage Potash Corp are associated (or correlated) with Imperial Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Oil has no effect on the direction of Sage Potash i.e., Sage Potash and Imperial Oil go up and down completely randomly.

Pair Corralation between Sage Potash and Imperial Oil

Assuming the 90 days trading horizon Sage Potash is expected to generate 36.71 times less return on investment than Imperial Oil. In addition to that, Sage Potash is 3.94 times more volatile than Imperial Oil. It trades about 0.0 of its total potential returns per unit of risk. Imperial Oil is currently generating about 0.12 per unit of volatility. If you would invest  8,959  in Imperial Oil on September 10, 2024 and sell it today you would earn a total of  1,142  from holding Imperial Oil or generate 12.75% return on investment over 90 days.

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

Sage Potash Corp  vs.  Imperial Oil

Sage Potash Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sage Potash Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Sage Potash is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Imperial Oil

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Oil are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Imperial Oil displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sage Potash and Imperial Oil

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

The idea behind Sage Potash Corp and Imperial Oil 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.