Correlation Between EQT and Vaalco Energy

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

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

Diversification Opportunities for EQT and Vaalco Energy

-0.7

Correlation Coefficient

EQT  Vaalco Energy

Excellent diversification

The 3 months correlation between EQT and Vaalco is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding EQT Corp. and Vaalco Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vaalco Energy and EQT 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 EQT Corporation are associated (or correlated) with Vaalco Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vaalco Energy has no effect on the direction of EQT i.e., EQT and Vaalco Energy go up and down completely randomly.

Pair Corralation between EQT and Vaalco Energy

Considering the 90-day investment horizon EQT Corporation is expected to generate 0.77 times more return on investment than Vaalco Energy. However, EQT Corporation is 1.3 times less risky than Vaalco Energy. It trades about -0.15 of its potential returns per unit of risk. Vaalco Energy is currently generating about -0.37 per unit of risk. If you would invest  4,599  in EQT Corporation on September 24, 2024 and sell it today you would lose (265.00) from holding EQT Corporation or give up 5.76% of portfolio value over 90 days.

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

EQT Corp.  vs.  Vaalco Energy

EQT Corporation

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EQT Corporation are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, EQT unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 conflicting performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with EQT and Vaalco Energy

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

The idea behind EQT Corporation and Vaalco 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.

Check out your portfolio center.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.