Correlation Between Diamondback Energy and Expand Energy

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

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

Diversification Opportunities for Diamondback Energy and Expand Energy

-0.36

Correlation Coefficient

Diamondback Energy  Expand Energy

Very good diversification

The 3 months correlation between Diamondback and Expand is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Diamondback Energy and Expand Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Expand Energy 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 Expand Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Expand Energy has no effect on the direction of Diamondback Energy i.e., Diamondback Energy and Expand Energy go up and down completely randomly.

Pair Corralation between Diamondback Energy and Expand Energy

Given the investment horizon of 90 days Diamondback Energy is expected to under-perform the Expand Energy. But the stock apears to be less risky and, when comparing its historical volatility, Diamondback Energy is 1.13 times less risky than Expand Energy. The stock trades about -0.36 of its potential returns per unit of risk. The Expand Energy is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  8,948  in Expand Energy on September 20, 2024 and sell it today you would lose (103.00) from holding Expand Energy or give up 1.15% of portfolio value over 90 days.

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

Diamondback Energy  vs.  Expand Energy

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 unsteady 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.

Expand Energy

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Expand Energy are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Expand Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diamondback Energy and Expand Energy

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

The idea behind Diamondback Energy and Expand 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.