Correlation Between Vaalco Energy and Diamondback Energy

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

Diversification Opportunities for Vaalco Energy and Diamondback Energy

0.9

Correlation Coefficient

Vaalco Energy  Diamondback Energy

Almost no diversification

The 3 months correlation between Vaalco and Diamondback is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Vaalco Energy and Diamondback Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondback 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 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 Vaalco Energy i.e., Vaalco Energy and Diamondback Energy go up and down completely randomly.

Pair Corralation between Vaalco Energy and Diamondback Energy

Considering the 90-day investment horizon Vaalco Energy is expected to under-perform the Diamondback Energy. In addition to that, Vaalco Energy is 1.38 times more volatile than Diamondback Energy. It trades about -0.06 of its total potential returns per unit of risk. Diamondback Energy is currently generating about -0.01 per unit of volatility. If you would invest  18,441  in Diamondback Energy on October 13, 2024 and sell it today you would lose (964.00) from holding Diamondback Energy or give up 5.23% 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.  Diamondback 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.

Diamondback Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamondback Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Vaalco Energy and Diamondback Energy

The main advantage of trading using opposite Vaalco Energy and Diamondback Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vaalco 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 Vaalco 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.