Correlation Between HP and Imperial Oil
Can any of the company-specific risk be diversified away by investing in both HP and Imperial Oil 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 HP and Imperial Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HP Inc and Imperial Oil, you can compare the effects of market volatilities on HP and Imperial Oil 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 HP with a short position of Imperial Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and Imperial Oil.
Diversification Opportunities for HP and Imperial Oil
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between HP and Imperial is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Imperial Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Oil and HP 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 HP Inc are associated (or correlated) with Imperial Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Oil has no effect on the direction of HP i.e., HP and Imperial Oil go up and down completely randomly.
Pair Corralation between HP and Imperial Oil
Considering the 90-day investment horizon HP Inc is expected to under-perform the Imperial Oil. But the stock apears to be less risky and, when comparing its historical volatility, HP Inc is 1.14 times less risky than Imperial Oil. The stock trades about -0.01 of its potential returns per unit of risk. The Imperial Oil is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 5,051 in Imperial Oil on January 26, 2024 and sell it today you would earn a total of 2,012 from holding Imperial Oil or generate 39.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
HP Inc vs. Imperial Oil
Performance |
| Timeline |
| HP Inc |
| Imperial Oil |
HP and Imperial Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HP and Imperial Oil
The main advantage of trading using opposite HP and Imperial Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP position performs unexpectedly, Imperial Oil 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 Imperial Oil will offset losses from the drop in Imperial Oil's long position.The idea behind HP Inc and Imperial Oil 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.| Imperial Oil vs. Shell PLC ADR | Imperial Oil vs. Suncor Energy | Imperial Oil vs. TotalEnergies SE ADR | Imperial Oil vs. Petrleo Brasileiro SA |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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