Correlation Between Diamondback Energy and Obsidian Energy

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

Diversification Opportunities for Diamondback Energy and Obsidian Energy

0.47

Correlation Coefficient

Diamondback Energy  Obsidian Energy

Very weak diversification

The 3 months correlation between Diamondback and Obsidian is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Diamondback Energy and Obsidian Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Obsidian 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 Obsidian Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Obsidian Energy has no effect on the direction of Diamondback Energy i.e., Diamondback Energy and Obsidian Energy go up and down completely randomly.

Pair Corralation between Diamondback Energy and Obsidian Energy

Given the investment horizon of 90 days Diamondback Energy is expected to under-perform the Obsidian Energy. But the stock apears to be less risky and, when comparing its historical volatility, Diamondback Energy is 2.04 times less risky than Obsidian Energy. The stock trades about -0.13 of its potential returns per unit of risk. The Obsidian Energy is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  576.00  in Obsidian Energy on November 28, 2024 and sell it today you would lose (55.00) from holding Obsidian Energy or give up 9.55% of portfolio value over 90 days.

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

Diamondback Energy  vs.  Obsidian Energy

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 unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Obsidian Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Obsidian Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Diamondback Energy and Obsidian Energy

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

The idea behind Diamondback Energy and Obsidian 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.