Correlation Between Diamondback Energy and Evolution Petroleum

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

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

Diversification Opportunities for Diamondback Energy and Evolution Petroleum

0.88

Correlation Coefficient

Diamondback Energy  Evolution Petroleum

Very poor diversification

The 3 months correlation between Diamondback and Evolution is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Diamondback Energy and Evolution Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution Petroleum and Diamondback 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 Diamondback Energy are associated (or correlated) with Evolution Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution Petroleum has no effect on the direction of Diamondback Energy i.e., Diamondback Energy and Evolution Petroleum go up and down completely randomly.

Pair Corralation between Diamondback Energy and Evolution Petroleum

Given the investment horizon of 90 days Diamondback Energy is expected to generate 1.0 times more return on investment than Evolution Petroleum. However, Diamondback Energy is 1.0 times more volatile than Evolution Petroleum. It trades about -0.09 of its potential returns per unit of risk. Evolution Petroleum is currently generating about -0.11 per unit of risk. If you would invest  17,583  in Diamondback Energy on December 2, 2024 and sell it today you would lose (1,687) from holding Diamondback Energy or give up 9.59% of portfolio value over 90 days.

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

Diamondback Energy  vs.  Evolution Petroleum

Diamondback Energy

Risk-Adjusted Performance

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.

Evolution Petroleum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Evolution Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Diamondback Energy and Evolution Petroleum

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

The idea behind Diamondback Energy and Evolution Petroleum 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..