Correlation Between IShares Canadian and Suncor Energy

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

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

Diversification Opportunities for IShares Canadian and Suncor Energy

0.2

Correlation Coefficient

IShares Canadian  Suncor Energy

Modest diversification

The 3 months correlation between IShares and Suncor is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding iShares Canadian HYBrid and Suncor Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suncor Energy and IShares Canadian 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 iShares Canadian HYBrid are associated (or correlated) with Suncor Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suncor Energy has no effect on the direction of IShares Canadian i.e., IShares Canadian and Suncor Energy go up and down completely randomly.

Pair Corralation between IShares Canadian and Suncor Energy

Assuming the 90 days trading horizon IShares Canadian is expected to generate 1.53 times less return on investment than Suncor Energy. But when comparing it to its historical volatility, iShares Canadian HYBrid is 5.93 times less risky than Suncor Energy. It trades about 0.19 of its potential returns per unit of risk. Suncor Energy is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  5,343  in Suncor Energy on September 2, 2024 and sell it today you would earn a total of  228.00  from holding Suncor Energy or generate 4.27% return on investment over 90 days.

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

iShares Canadian HYBrid  vs.  Suncor Energy

iShares Canadian HYBrid

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian HYBrid are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Suncor Energy

Risk-Adjusted Performance

3 of 100

Insignificant

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

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

The idea behind iShares Canadian HYBrid and Suncor Energy 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.