Correlation Between Shell PLC and Imperial Oil

Can any of the company-specific risk be diversified away by investing in both Shell PLC 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 Shell PLC and Imperial Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shell PLC ADR and Imperial Oil, you can compare the effects of market volatilities on Shell PLC 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 Shell PLC with a short position of Imperial Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shell PLC and Imperial Oil.

Diversification Opportunities for Shell PLC and Imperial Oil

0.89

Correlation Coefficient

Shell PLC  Imperial Oil

Very poor diversification

The 3 months correlation between Shell and Imperial is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Shell PLC ADR and Imperial Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Oil and Shell PLC 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 Shell PLC ADR 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 Shell PLC i.e., Shell PLC and Imperial Oil go up and down completely randomly.

Pair Corralation between Shell PLC and Imperial Oil

Given the investment horizon of 90 days Shell PLC is expected to generate 1.26 times less return on investment than Imperial Oil. But when comparing it to its historical volatility, Shell PLC ADR is 1.32 times less risky than Imperial Oil. It trades about 0.05 of its potential returns per unit of risk. Imperial Oil is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,623  in Imperial Oil on January 30, 2024 and sell it today you would earn a total of  2,447  from holding Imperial Oil or generate 52.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Shell PLC ADR  vs.  Imperial Oil

Shell PLC ADR

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shell PLC ADR are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating technical and fundamental indicators, Shell PLC disclosed solid returns over the last few months and may actually be approaching a breakup point.

Imperial Oil

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Oil are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain primary indicators, Imperial Oil displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shell PLC and Imperial Oil

The main advantage of trading using opposite Shell PLC and Imperial Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shell PLC 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 Shell PLC ADR 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.