Correlation Between Canadian Natural and Magna Mining

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Can any of the company-specific risk be diversified away by investing in both Canadian Natural and Magna Mining 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 Canadian Natural and Magna Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Canadian Natural Resources and Magna Mining, you can compare the effects of market volatilities on Canadian Natural and Magna Mining 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 Canadian Natural with a short position of Magna Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Natural and Magna Mining.

Diversification Opportunities for Canadian Natural and Magna Mining

0.78
  Correlation Coefficient

Poor diversification

The 3 months correlation between Canadian and Magna is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Natural Resources and Magna Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magna Mining and Canadian Natural 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 Canadian Natural Resources are associated (or correlated) with Magna Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magna Mining has no effect on the direction of Canadian Natural i.e., Canadian Natural and Magna Mining go up and down completely randomly.

Pair Corralation between Canadian Natural and Magna Mining

Assuming the 90 days trading horizon Canadian Natural is expected to generate 6.57 times less return on investment than Magna Mining. But when comparing it to its historical volatility, Canadian Natural Resources is 5.75 times less risky than Magna Mining. It trades about 0.3 of its potential returns per unit of risk. Magna Mining is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  46.00  in Magna Mining on January 17, 2024 and sell it today you would earn a total of  24.00  from holding Magna Mining or generate 52.17% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.24%
ValuesDaily Returns

Canadian Natural Resources  vs.  Magna Mining

 Performance 
       Timeline  
Canadian Natural Res 

Risk-Adjusted Performance

20 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Natural Resources are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Canadian Natural displayed solid returns over the last few months and may actually be approaching a breakup point.
Magna Mining 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Magna Mining are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, Magna Mining showed solid returns over the last few months and may actually be approaching a breakup point.

Canadian Natural and Magna Mining Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Canadian Natural and Magna Mining

The main advantage of trading using opposite Canadian Natural and Magna Mining positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Natural position performs unexpectedly, Magna Mining 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 Magna Mining will offset losses from the drop in Magna Mining's long position.
The idea behind Canadian Natural Resources and Magna Mining 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.

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