Correlation Between Vaalco Energy and Devon Energy

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

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

Diversification Opportunities for Vaalco Energy and Devon Energy

0.95

Correlation Coefficient

Vaalco Energy  Devon Energy

Almost no diversification

The 3 months correlation between Vaalco and Devon is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vaalco Energy and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon Energy and Vaalco 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 Vaalco Energy are associated (or correlated) with Devon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Devon Energy has no effect on the direction of Vaalco Energy i.e., Vaalco Energy and Devon Energy go up and down completely randomly.

Pair Corralation between Vaalco Energy and Devon Energy

Considering the 90-day investment horizon Vaalco Energy is expected to under-perform the Devon Energy. In addition to that, Vaalco Energy is 1.5 times more volatile than Devon Energy. It trades about -0.06 of its total potential returns per unit of risk. Devon Energy is currently generating about -0.08 per unit of volatility. If you would invest  4,497  in Devon Energy on October 13, 2024 and sell it today you would lose (898.00) from holding Devon Energy or give up 19.97% of portfolio value over 90 days.

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

Vaalco Energy  vs.  Devon Energy

Vaalco Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vaalco Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Vaalco Energy and Devon Energy

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

The idea behind Vaalco Energy and Devon 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.