Correlation Between Hess and Expand Energy

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

Diversification Opportunities for Hess and Expand Energy

0.76

Correlation Coefficient

Hess  Expand Energy

Poor diversification

The 3 months correlation between Hess and Expand is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Hess Corp. and Expand Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Expand 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 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 Hess i.e., Hess and Expand Energy go up and down completely randomly.

Pair Corralation between Hess and Expand Energy

Considering the 90-day investment horizon Hess is expected to generate 2.24 times less return on investment than Expand Energy. But when comparing it to its historical volatility, Hess Corporation is 1.31 times less risky than Expand Energy. It trades about 0.03 of its potential returns per unit of risk. Expand Energy is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  5,965  in Expand Energy on December 7, 2024 and sell it today you would earn a total of  3,380  from holding Expand Energy or generate 56.66% return on investment over 90 days.

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

Hess Corp.  vs.  Expand Energy

Hess

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hess Corporation are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Hess is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Expand Energy

Risk-Adjusted Performance

Weak

Over the last 90 days Expand Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Expand Energy is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Hess and Expand Energy

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