Correlation Between EQT and Diamondback Energy

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

Diversification Opportunities for EQT and Diamondback Energy

-0.03

Correlation Coefficient

EQT  Diamondback Energy

Good diversification

The 3 months correlation between EQT and Diamondback is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding EQT Corp. and Diamondback Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondback 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 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 EQT i.e., EQT and Diamondback Energy go up and down completely randomly.

Pair Corralation between EQT and Diamondback Energy

Considering the 90-day investment horizon EQT Corporation is expected to generate 0.98 times more return on investment than Diamondback Energy. However, EQT Corporation is 1.02 times less risky than Diamondback Energy. It trades about 0.23 of its potential returns per unit of risk. Diamondback Energy is currently generating about -0.06 per unit of risk. If you would invest  3,337  in EQT Corporation on August 30, 2024 and sell it today you would earn a total of  1,191  from holding EQT Corporation or generate 35.69% return on investment over 90 days.

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

EQT Corp.  vs.  Diamondback Energy

EQT Corporation

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in EQT Corporation are ranked lower than 18 (%) 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.

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 EQT and Diamondback Energy

The main advantage of trading using opposite EQT and Diamondback Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EQT 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 EQT Corporation 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.