Correlation Between Whitecap Resources and Paramount Resources

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

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

Diversification Opportunities for Whitecap Resources and Paramount Resources

-0.06

Correlation Coefficient

Whitecap Resources  Paramount Resources

Good diversification

The 3 months correlation between Whitecap and Paramount is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Whitecap Resources and Paramount Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paramount Resources and Whitecap Resources 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 Whitecap Resources are associated (or correlated) with Paramount Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paramount Resources has no effect on the direction of Whitecap Resources i.e., Whitecap Resources and Paramount Resources go up and down completely randomly.

Pair Corralation between Whitecap Resources and Paramount Resources

Assuming the 90 days trading horizon Whitecap Resources is expected to under-perform the Paramount Resources. But the stock apears to be less risky and, when comparing its historical volatility, Whitecap Resources is 1.54 times less risky than Paramount Resources. The stock trades about -0.03 of its potential returns per unit of risk. The Paramount Resources is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,529  in Paramount Resources on September 17, 2024 and sell it today you would earn a total of  521.00  from holding Paramount Resources or generate 20.6% return on investment over 90 days.

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

Whitecap Resources  vs.  Paramount Resources

Whitecap Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Whitecap Resources has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Paramount Resources

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Paramount Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Paramount Resources displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Whitecap Resources and Paramount Resources

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

The idea behind Whitecap Resources and Paramount 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.