Correlation Between Vermilion Energy and Whitecap Resources

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

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

Diversification Opportunities for Vermilion Energy and Whitecap Resources

0.71

Correlation Coefficient

Vermilion Energy  Whitecap Resources

Poor diversification

The 3 months correlation between Vermilion and Whitecap is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Vermilion Energy and Whitecap Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Whitecap Resources 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 Whitecap Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Whitecap Resources has no effect on the direction of Vermilion Energy i.e., Vermilion Energy and Whitecap Resources go up and down completely randomly.

Pair Corralation between Vermilion Energy and Whitecap Resources

Assuming the 90 days trading horizon Vermilion Energy is expected to generate 1.34 times more return on investment than Whitecap Resources. However, Vermilion Energy is 1.34 times more volatile than Whitecap Resources. It trades about 0.09 of its potential returns per unit of risk. Whitecap Resources is currently generating about 0.05 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.  Whitecap Resources

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.

Whitecap Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Whitecap Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Whitecap Resources 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 Whitecap Resources

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

The idea behind Vermilion Energy and Whitecap 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.