Correlation Between APA and Vermilion Energy
Can any of the company-specific risk be diversified away by investing in both APA and Vermilion 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 APA and Vermilion Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between APA Corporation and Vermilion Energy, you can compare the effects of market volatilities on APA and Vermilion 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 APA with a short position of Vermilion Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of APA and Vermilion Energy.
Diversification Opportunities for APA and Vermilion Energy
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between APA and Vermilion is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and Vermilion Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vermilion Energy and APA 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 APA Corporation are associated (or correlated) with Vermilion Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vermilion Energy has no effect on the direction of APA i.e., APA and Vermilion Energy go up and down completely randomly.
Pair Corralation between APA and Vermilion Energy
Considering the 90-day investment horizon APA Corporation is expected to generate 1.43 times more return on investment than Vermilion Energy. However, APA is 1.43 times more volatile than Vermilion Energy. It trades about -0.01 of its potential returns per unit of risk. Vermilion Energy is currently generating about -0.16 per unit of risk. If you would invest 2,313 in APA Corporation on November 2, 2024 and sell it today you would lose (14.00) from holding APA Corporation or give up 0.61% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
APA Corp. vs. Vermilion Energy
Performance |
| Timeline |
| APA Corporation |
| Vermilion Energy |
APA and Vermilion Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with APA and Vermilion Energy
The main advantage of trading using opposite APA and Vermilion Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if APA position performs unexpectedly, Vermilion 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 Vermilion Energy will offset losses from the drop in Vermilion Energy's long position.The idea behind APA Corporation and Vermilion 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.| Vermilion Energy vs. Baytex Energy Corp | Vermilion Energy vs. Obsidian Energy | Vermilion Energy vs. Canadian Natural Resources | Vermilion Energy vs. Ovintiv |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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