Correlation Between Vermilion Energy and MEG Energy

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

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

Diversification Opportunities for Vermilion Energy and MEG Energy

0.64

Correlation Coefficient

Vermilion Energy  MEG Energy

Poor diversification

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

Pair Corralation between Vermilion Energy and MEG Energy

Assuming the 90 days trading horizon Vermilion Energy is expected to generate 0.98 times more return on investment than MEG Energy. However, Vermilion Energy is 1.02 times less risky than MEG Energy. It trades about 0.09 of its potential returns per unit of risk. MEG Energy Corp is currently generating about 0.0 per unit of risk. 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

Vermilion Energy  vs.  MEG Energy Corp

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.

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.

Pair Trading with Vermilion Energy and MEG Energy

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

The idea behind Vermilion Energy and MEG Energy Corp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.