Correlation Between Diversified Energy and Synchrony Financial

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

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

Diversification Opportunities for Diversified Energy and Synchrony Financial

0.87

Correlation Coefficient

Diversified Energy  Synchrony Financial

Very poor diversification

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

Pair Corralation between Diversified Energy and Synchrony Financial

Assuming the 90 days trading horizon Diversified Energy is expected to generate 0.78 times more return on investment than Synchrony Financial. However, Diversified Energy is 1.29 times less risky than Synchrony Financial. It trades about 0.24 of its potential returns per unit of risk. Synchrony Financial is currently generating about 0.18 per unit of risk. If you would invest  86,830  in Diversified Energy on September 4, 2024 and sell it today you would earn a total of  36,670  from holding Diversified Energy or generate 42.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Diversified Energy  vs.  Synchrony Financial

Diversified Energy

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Energy are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Diversified Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Synchrony Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Synchrony Financial are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Synchrony Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diversified Energy and Synchrony Financial

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

The idea behind Diversified Energy and Synchrony Financial 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 Anywhere module to track or share privately all of your investments from the convenience of any device.