Correlation Between EQT and Earthstone Energy

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

Diversification Opportunities for EQT and Earthstone Energy

0.54

Correlation Coefficient

EQT  Earthstone Energy

Very weak diversification

The 3 months correlation between EQT and Earthstone is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding EQT Corp. and Earthstone Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Earthstone 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 Earthstone Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Earthstone Energy has no effect on the direction of EQT i.e., EQT and Earthstone Energy go up and down completely randomly.

Pair Corralation between EQT and Earthstone Energy

If you would invest  3,581  in EQT Corporation on September 21, 2024 and sell it today you would earn a total of  684.00  from holding EQT Corporation or generate 19.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	1.59%
Values	Daily Returns

EQT Corp.  vs.  Earthstone Energy

EQT Corporation

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EQT Corporation are ranked lower than 10 (%) 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.

Earthstone Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Earthstone Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Earthstone Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with EQT and Earthstone Energy

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

The idea behind EQT Corporation and Earthstone 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.