Correlation Between Devon Energy and SDX Energy

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

Diversification Opportunities for Devon Energy and SDX Energy

0.19

Correlation Coefficient

Devon Energy  SDX Energy

Average diversification

The 3 months correlation between Devon and SDX is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Devon Energy and SDX Energy plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SDX Energy plc 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 SDX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SDX Energy plc has no effect on the direction of Devon Energy i.e., Devon Energy and SDX Energy go up and down completely randomly.

Pair Corralation between Devon Energy and SDX Energy

Considering the 90-day investment horizon Devon Energy is expected to generate 28.39 times less return on investment than SDX Energy. But when comparing it to its historical volatility, Devon Energy is 35.11 times less risky than SDX Energy. It trades about 0.16 of its potential returns per unit of risk. SDX Energy plc is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  0.41  in SDX Energy plc on December 26, 2024 and sell it today you would earn a total of  1.01  from holding SDX Energy plc or generate 246.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Devon Energy  vs.  SDX Energy plc

Devon Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Devon Energy are ranked lower than 12 (%) 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.

SDX Energy plc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SDX Energy plc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, SDX Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Devon Energy and SDX Energy

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

The idea behind Devon Energy and SDX Energy plc 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.