Correlation Between Gran Tierra and Devon Energy

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

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

Diversification Opportunities for Gran Tierra and Devon Energy

-0.33

Correlation Coefficient

Gran Tierra  Devon Energy

Very good diversification

The 3 months correlation between Gran and Devon is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Gran Tierra Energy and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon Energy and Gran Tierra 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 Gran Tierra Energy are associated (or correlated) with Devon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Devon Energy has no effect on the direction of Gran Tierra i.e., Gran Tierra and Devon Energy go up and down completely randomly.

Pair Corralation between Gran Tierra and Devon Energy

Considering the 90-day investment horizon Gran Tierra is expected to generate 1.3 times less return on investment than Devon Energy. In addition to that, Gran Tierra is 2.78 times more volatile than Devon Energy. It trades about 0.25 of its total potential returns per unit of risk. Devon Energy is currently generating about 0.91 per unit of volatility. If you would invest  3,052  in Devon Energy on October 20, 2024 and sell it today you would earn a total of  743.00  from holding Devon Energy or generate 24.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Gran Tierra Energy  vs.  Devon Energy

Gran Tierra Energy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gran Tierra Energy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Gran Tierra exhibited solid returns over the last few months and may actually be approaching a breakup point.

Devon Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Devon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Devon Energy is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Gran Tierra and Devon Energy

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

The idea behind Gran Tierra Energy and Devon 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.