Correlation Between APA and EQT

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

By analyzing existing cross correlation between APA Corporation and EQT Corporation, you can compare the effects of market volatilities on APA and EQT 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 EQT. Check out your portfolio center. Please also check ongoing floating volatility patterns of APA and EQT.

Diversification Opportunities for APA and EQT

0.31

Correlation Coefficient

APA  EQT

Weak diversification

The 3 months correlation between APA and EQT is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and EQT Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EQT Corporation 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 EQT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EQT Corporation has no effect on the direction of APA i.e., APA and EQT go up and down completely randomly.

Pair Corralation between APA and EQT

Considering the 90-day investment horizon APA Corporation is expected to under-perform the EQT. But the stock apears to be less risky and, when comparing its historical volatility, APA Corporation is 1.04 times less risky than EQT. The stock trades about -0.01 of its potential returns per unit of risk. The EQT Corporation is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,405  in EQT Corporation on December 26, 2024 and sell it today you would earn a total of  1,020  from holding EQT Corporation or generate 23.16% return on investment over 90 days.

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

APA Corp.  vs.  EQT Corp.

APA Corporation

Risk-Adjusted Performance

Very Weak

Over the last 90 days APA Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, APA is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

EQT Corporation

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EQT Corporation are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, EQT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with APA and EQT

The main advantage of trading using opposite APA and EQT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if APA position performs unexpectedly, EQT 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 EQT will offset losses from the drop in EQT's long position.

The idea behind APA Corporation and EQT Corporation 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.