Correlation Between APA and Woodside Energy

Can any of the company-specific risk be diversified away by investing in both APA and Woodside 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 Woodside 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 Woodside Energy Group, you can compare the effects of market volatilities on APA and Woodside 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 Woodside Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of APA and Woodside Energy.

Diversification Opportunities for APA and Woodside Energy

0.71

Correlation Coefficient

APA  Woodside Energy

Poor diversification

The 3 months correlation between APA and Woodside is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and Woodside Energy Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woodside Energy Group 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 Woodside Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woodside Energy Group has no effect on the direction of APA i.e., APA and Woodside Energy go up and down completely randomly.

Pair Corralation between APA and Woodside Energy

Considering the 90-day investment horizon APA Corporation is expected to generate 1.48 times more return on investment than Woodside Energy. However, APA is 1.48 times more volatile than Woodside Energy Group. It trades about -0.01 of its potential returns per unit of risk. Woodside Energy Group is currently generating about -0.02 per unit of risk. If you would invest  2,186  in APA Corporation on December 27, 2024 and sell it today you would lose (76.00) from holding APA Corporation or give up 3.48% of portfolio value over 90 days.

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

APA Corp.  vs.  Woodside Energy Group

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.

Woodside Energy Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Woodside Energy Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Woodside Energy is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with APA and Woodside Energy

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

The idea behind APA Corporation and Woodside Energy Group 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.