Correlation Between Baytex Energy and Murphy Oil

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

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

Diversification Opportunities for Baytex Energy and Murphy Oil

0.87

Correlation Coefficient

Baytex Energy  Murphy Oil

Very poor diversification

The 3 months correlation between Baytex and Murphy is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Baytex Energy Corp and Murphy Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Murphy Oil and Baytex 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 Baytex Energy Corp are associated (or correlated) with Murphy Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Murphy Oil has no effect on the direction of Baytex Energy i.e., Baytex Energy and Murphy Oil go up and down completely randomly.

Pair Corralation between Baytex Energy and Murphy Oil

Considering the 90-day investment horizon Baytex Energy Corp is expected to generate 1.2 times more return on investment than Murphy Oil. However, Baytex Energy is 1.2 times more volatile than Murphy Oil. It trades about -0.02 of its potential returns per unit of risk. Murphy Oil is currently generating about -0.03 per unit of risk. If you would invest  226.00  in Baytex Energy Corp on December 18, 2024 and sell it today you would lose (13.00) from holding Baytex Energy Corp or give up 5.75% of portfolio value over 90 days.

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

Baytex Energy Corp  vs.  Murphy Oil

Baytex Energy Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Baytex Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Baytex Energy is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Murphy Oil

Risk-Adjusted Performance

Very Weak

Over the last 90 days Murphy Oil has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Murphy Oil is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Baytex Energy and Murphy Oil

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

The idea behind Baytex Energy Corp and Murphy 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.