Correlation Between Magnolia Oil and SandRidge Energy

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

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

Diversification Opportunities for Magnolia Oil and SandRidge Energy

0.17

Correlation Coefficient

Magnolia Oil  SandRidge Energy

Average diversification

The 3 months correlation between Magnolia and SandRidge is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Magnolia Oil Gas and SandRidge Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SandRidge Energy and Magnolia Oil 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 Magnolia Oil Gas are associated (or correlated) with SandRidge Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SandRidge Energy has no effect on the direction of Magnolia Oil i.e., Magnolia Oil and SandRidge Energy go up and down completely randomly.

Pair Corralation between Magnolia Oil and SandRidge Energy

Considering the 90-day investment horizon Magnolia Oil Gas is expected to under-perform the SandRidge Energy. In addition to that, Magnolia Oil is 1.25 times more volatile than SandRidge Energy. It trades about -0.09 of its total potential returns per unit of risk. SandRidge Energy is currently generating about 0.0 per unit of volatility. If you would invest  1,195  in SandRidge Energy on November 28, 2024 and sell it today you would lose (3.50) from holding SandRidge Energy or give up 0.29% of portfolio value over 90 days.

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

Magnolia Oil Gas  vs.  SandRidge Energy

Magnolia Oil Gas

Risk-Adjusted Performance

Very Weak

Over the last 90 days Magnolia Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

SandRidge Energy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SandRidge Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, SandRidge Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Magnolia Oil and SandRidge Energy

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

The idea behind Magnolia Oil Gas and SandRidge 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.