Correlation Between Chesapeake Energy and Diamondback Energy

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

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

Diversification Opportunities for Chesapeake Energy and Diamondback Energy

-0.12

Correlation Coefficient

Chesapeake Energy  Diamondback Energy

Good diversification

The 3 months correlation between Chesapeake and Diamondback is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Energy and Diamondback Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondback Energy and Chesapeake 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 Chesapeake Energy are associated (or correlated) with Diamondback Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondback Energy has no effect on the direction of Chesapeake Energy i.e., Chesapeake Energy and Diamondback Energy go up and down completely randomly.

Pair Corralation between Chesapeake Energy and Diamondback Energy

If you would invest  8,146  in Chesapeake Energy on September 21, 2024 and sell it today you would earn a total of  0.00  from holding Chesapeake Energy or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	4.76%
Values	Daily Returns

Chesapeake Energy  vs.  Diamondback Energy

Chesapeake Energy

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Chesapeake Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite unsteady technical indicators, Chesapeake Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Diamondback Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamondback Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Chesapeake Energy and Diamondback Energy

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

The idea behind Chesapeake Energy and Diamondback Energy 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.