Correlation Between Hess and Devon Energy

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

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

Diversification Opportunities for Hess and Devon Energy

-0.88

Correlation Coefficient

Hess  Devon Energy

Pay attention - limited upside

The 3 months correlation between Hess and Devon is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Hess Corp. and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon Energy and Hess 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 Hess Corporation 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 Hess i.e., Hess and Devon Energy go up and down completely randomly.

Pair Corralation between Hess and Devon Energy

Assuming the 90 days trading horizon Hess Corporation is expected to generate 0.59 times more return on investment than Devon Energy. However, Hess Corporation is 1.7 times less risky than Devon Energy. It trades about 0.01 of its potential returns per unit of risk. Devon Energy is currently generating about -0.03 per unit of risk. If you would invest  38,069  in Hess Corporation on October 4, 2024 and sell it today you would lose (145.00) from holding Hess Corporation or give up 0.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.19%
Values	Daily Returns

Hess Corp.  vs.  Devon Energy

Hess

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hess Corporation are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Hess is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Hess and Devon Energy

The main advantage of trading using opposite Hess and Devon Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hess 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 Hess Corporation 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.

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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 Bonds Directory module to find actively traded corporate debentures issued by US companies.