Correlation Between Imperial Oil and HP
Can any of the company-specific risk be diversified away by investing in both Imperial Oil and HP 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 Imperial Oil and HP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Imperial Oil and HP Inc, you can compare the effects of market volatilities on Imperial Oil and HP 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 Imperial Oil with a short position of HP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Imperial Oil and HP.
Diversification Opportunities for Imperial Oil and HP
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Imperial and HP is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Oil and HP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HP Inc and Imperial Oil 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 Imperial Oil are associated (or correlated) with HP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HP Inc has no effect on the direction of Imperial Oil i.e., Imperial Oil and HP go up and down completely randomly.
Pair Corralation between Imperial Oil and HP
Considering the 90-day investment horizon Imperial Oil is expected to generate 1.06 times more return on investment than HP. However, Imperial Oil is 1.06 times more volatile than HP Inc. It trades about 0.08 of its potential returns per unit of risk. HP Inc is currently generating about -0.26 per unit of risk. If you would invest 6,901 in Imperial Oil on January 24, 2024 and sell it today you would earn a total of 143.00 from holding Imperial Oil or generate 2.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Imperial Oil vs. HP Inc
Performance |
| Timeline |
| Imperial Oil |
| HP Inc |
Imperial Oil and HP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Imperial Oil and HP
The main advantage of trading using opposite Imperial Oil and HP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Imperial Oil position performs unexpectedly, HP 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 HP will offset losses from the drop in HP's long position.The idea behind Imperial Oil and HP Inc 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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