Correlation Between Woodside Energy and Canadian Natural

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

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

Diversification Opportunities for Woodside Energy and Canadian Natural

0.27

Correlation Coefficient

Woodside Energy  Canadian Natural

Modest diversification

The 3 months correlation between Woodside and Canadian is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Woodside Energy Group and Canadian Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Natural Res and Woodside 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 Woodside Energy Group are associated (or correlated) with Canadian Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Natural Res has no effect on the direction of Woodside Energy i.e., Woodside Energy and Canadian Natural go up and down completely randomly.

Pair Corralation between Woodside Energy and Canadian Natural

Assuming the 90 days trading horizon Woodside Energy is expected to generate 18.52 times less return on investment than Canadian Natural. But when comparing it to its historical volatility, Woodside Energy Group is 1.29 times less risky than Canadian Natural. It trades about 0.01 of its potential returns per unit of risk. Canadian Natural Resources is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  5,969  in Canadian Natural Resources on February 28, 2024 and sell it today you would earn a total of  1,101  from holding Canadian Natural Resources or generate 18.45% return on investment over 90 days.

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

Woodside Energy Group  vs.  Canadian Natural Resources

Woodside Energy Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Canadian Natural Res

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Natural Resources are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Canadian Natural reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Woodside Energy and Canadian Natural

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

The idea behind Woodside Energy Group and Canadian Natural 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.