Correlation Between Devon Energy and Diamondback Energy

Can any of the company-specific risk be diversified away by investing in both Devon 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 Devon 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 Devon Energy and Diamondback Energy, you can compare the effects of market volatilities on Devon 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 Devon Energy with a short position of Diamondback Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Devon Energy and Diamondback Energy.

Diversification Opportunities for Devon Energy and Diamondback Energy

0.38

Correlation Coefficient

Devon Energy  Diamondback Energy

Weak diversification

The 3 months correlation between Devon and Diamondback is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Devon Energy and Diamondback Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondback Energy 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 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 Devon Energy i.e., Devon Energy and Diamondback Energy go up and down completely randomly.

Pair Corralation between Devon Energy and Diamondback Energy

Considering the 90-day investment horizon Devon Energy is expected to generate 1.14 times more return on investment than Diamondback Energy. However, Devon Energy is 1.14 times more volatile than Diamondback Energy. It trades about 0.12 of its potential returns per unit of risk. Diamondback Energy is currently generating about 0.0 per unit of risk. If you would invest  3,174  in Devon Energy on December 30, 2024 and sell it today you would earn a total of  502.00  from holding Devon Energy or generate 15.82% return on investment over 90 days.

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

Devon Energy  vs.  Diamondback Energy

Devon Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Devon Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Devon Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Diamondback Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamondback Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Diamondback Energy is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Devon Energy and Diamondback Energy

The main advantage of trading using opposite Devon Energy and Diamondback Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Devon 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 Devon 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.