Correlation Between Canadian Overseas and Prairie Provident

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

By analyzing existing cross correlation between Canadian Overseas Petroleum and Prairie Provident Resources, you can compare the effects of market volatilities on Canadian Overseas and Prairie Provident 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 Canadian Overseas with a short position of Prairie Provident. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Overseas and Prairie Provident.

Diversification Opportunities for Canadian Overseas and Prairie Provident

0.67

Correlation Coefficient

Canadian Overseas  Prairie Provident

Poor diversification

The 3 months correlation between Canadian and Prairie is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Overseas Petroleum and Prairie Provident Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prairie Provident and Canadian Overseas 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 Canadian Overseas Petroleum are associated (or correlated) with Prairie Provident. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prairie Provident has no effect on the direction of Canadian Overseas i.e., Canadian Overseas and Prairie Provident go up and down completely randomly.

Pair Corralation between Canadian Overseas and Prairie Provident

If you would invest  2.69  in Prairie Provident Resources on September 18, 2024 and sell it today you would lose (0.59) from holding Prairie Provident Resources or give up 21.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	1.59%
Values	Daily Returns

Canadian Overseas Petroleum  vs.  Prairie Provident Resources

Canadian Overseas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Overseas Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canadian Overseas is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Prairie Provident

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prairie Provident Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Prairie Provident reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Overseas and Prairie Provident

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

The idea behind Canadian Overseas Petroleum and Prairie Provident Resources 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.