Correlation Between Suncor Energy and Freehold Royalties
Can any of the company-specific risk be diversified away by investing in both Suncor Energy and Freehold Royalties 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 Suncor Energy and Freehold Royalties into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Suncor Energy and Freehold Royalties, you can compare the effects of market volatilities on Suncor Energy and Freehold Royalties 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 Suncor Energy with a short position of Freehold Royalties. Check out your portfolio center. Please also check ongoing floating volatility patterns of Suncor Energy and Freehold Royalties.
Diversification Opportunities for Suncor Energy and Freehold Royalties
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Suncor and Freehold is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Suncor Energy and Freehold Royalties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freehold Royalties and Suncor 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 Suncor Energy are associated (or correlated) with Freehold Royalties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freehold Royalties has no effect on the direction of Suncor Energy i.e., Suncor Energy and Freehold Royalties go up and down completely randomly.
Pair Corralation between Suncor Energy and Freehold Royalties
Assuming the 90 days horizon Suncor Energy is expected to generate 1.3 times more return on investment than Freehold Royalties. However, Suncor Energy is 1.3 times more volatile than Freehold Royalties. It trades about 0.06 of its potential returns per unit of risk. Freehold Royalties is currently generating about 0.01 per unit of risk. If you would invest 4,454 in Suncor Energy on September 1, 2024 and sell it today you would earn a total of 1,117 from holding Suncor Energy or generate 25.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Suncor Energy vs. Freehold Royalties
Performance |
| Timeline |
| Suncor Energy |
| Freehold Royalties |
Suncor Energy and Freehold Royalties Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Suncor Energy and Freehold Royalties
The main advantage of trading using opposite Suncor Energy and Freehold Royalties positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Suncor Energy position performs unexpectedly, Freehold Royalties 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 Freehold Royalties will offset losses from the drop in Freehold Royalties' long position.| Suncor Energy vs. Enbridge | Suncor Energy vs. Canadian Natural Resources | Suncor Energy vs. Toronto Dominion Bank | Suncor Energy vs. Bank of Nova |
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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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