Correlation Between Granite Ridge and Matador Resources

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

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

Diversification Opportunities for Granite Ridge and Matador Resources

0.87

Correlation Coefficient

Granite Ridge  Matador Resources

Very poor diversification

The 3 months correlation between Granite and Matador is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Granite Ridge Resources and Matador Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matador Resources and Granite Ridge 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 Granite Ridge Resources are associated (or correlated) with Matador Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matador Resources has no effect on the direction of Granite Ridge i.e., Granite Ridge and Matador Resources go up and down completely randomly.

Pair Corralation between Granite Ridge and Matador Resources

Given the investment horizon of 90 days Granite Ridge is expected to generate 10.59 times less return on investment than Matador Resources. But when comparing it to its historical volatility, Granite Ridge Resources is 1.3 times less risky than Matador Resources. It trades about 0.01 of its potential returns per unit of risk. Matador Resources is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,945  in Matador Resources on September 12, 2024 and sell it today you would earn a total of  678.00  from holding Matador Resources or generate 13.71% return on investment over 90 days.

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

Granite Ridge Resources  vs.  Matador Resources

Granite Ridge Resources

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Granite Ridge Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Granite Ridge is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Matador Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Matador Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating fundamental indicators, Matador Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Granite Ridge and Matador Resources

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

The idea behind Granite Ridge Resources and Matador Resources 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.