Correlation Between Barrel Energy and Matador Resources

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

By analyzing existing cross correlation between Barrel Energy and Matador Resources, you can compare the effects of market volatilities on Barrel Energy and Matador Resources 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 Barrel Energy with a short position of Matador Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barrel Energy and Matador Resources.

Diversification Opportunities for Barrel Energy and Matador Resources

-0.09

Correlation Coefficient

Barrel Energy  Matador Resources

Good diversification

The 3 months correlation between Barrel and Matador is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Barrel Energy and Matador Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matador Resources and Barrel 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 Barrel Energy are associated (or correlated) with Matador Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matador Resources has no effect on the direction of Barrel Energy i.e., Barrel Energy and Matador Resources go up and down completely randomly.

Pair Corralation between Barrel Energy and Matador Resources

Given the investment horizon of 90 days Barrel Energy is expected to generate 5.83 times more return on investment than Matador Resources. However, Barrel Energy is 5.83 times more volatile than Matador Resources. It trades about 0.14 of its potential returns per unit of risk. Matador Resources is currently generating about 0.15 per unit of risk. If you would invest  0.25  in Barrel Energy on October 12, 2024 and sell it today you would earn a total of  0.05  from holding Barrel Energy or generate 20.0% return on investment over 90 days.

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

Barrel Energy  vs.  Matador Resources

Barrel Energy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Barrel Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile essential indicators, Barrel Energy disclosed solid returns over the last few months and may actually be approaching a breakup point.

Matador Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Matador Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental indicators, Matador Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barrel Energy and Matador Resources

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

The idea behind Barrel Energy and Matador Resources 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.

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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.