Correlation Between Devon Energy and APA

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

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

Diversification Opportunities for Devon Energy and APA

0.89

Correlation Coefficient

Devon Energy  APA

Very poor diversification

The 3 months correlation between Devon and APA is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Devon Energy and APA Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on APA Corporation and Devon 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 Devon Energy are associated (or correlated) with APA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of APA Corporation has no effect on the direction of Devon Energy i.e., Devon Energy and APA go up and down completely randomly.

Pair Corralation between Devon Energy and APA

Considering the 90-day investment horizon Devon Energy is expected to generate 0.61 times more return on investment than APA. However, Devon Energy is 1.64 times less risky than APA. It trades about -0.14 of its potential returns per unit of risk. APA Corporation is currently generating about -0.11 per unit of risk. If you would invest  4,429  in Devon Energy on August 30, 2024 and sell it today you would lose (645.00) from holding Devon Energy or give up 14.56% of portfolio value over 90 days.

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

Devon Energy  vs.  APA Corp.

Devon Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Devon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

APA Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days APA Corporation 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 somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Devon Energy and APA

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

The idea behind Devon Energy and APA Corporation 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.