Correlation Between Marathon Oil and Diamondback Energy

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

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

Diversification Opportunities for Marathon Oil and Diamondback Energy

-0.3

Correlation Coefficient

Marathon Oil  Diamondback Energy

Very good diversification

The 3 months correlation between Marathon and Diamondback is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Marathon Oil and Diamondback Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondback Energy and Marathon 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 Marathon Oil are associated (or correlated) with Diamondback Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondback Energy has no effect on the direction of Marathon Oil i.e., Marathon Oil and Diamondback Energy go up and down completely randomly.

Pair Corralation between Marathon Oil and Diamondback Energy

Considering the 90-day investment horizon Marathon Oil is expected to generate 0.85 times more return on investment than Diamondback Energy. However, Marathon Oil is 1.18 times less risky than Diamondback Energy. It trades about 0.09 of its potential returns per unit of risk. Diamondback Energy is currently generating about -0.04 per unit of risk. If you would invest  2,656  in Marathon Oil on September 14, 2024 and sell it today you would earn a total of  199.00  from holding Marathon Oil or generate 7.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	79.37%
Values	Daily Returns

Marathon Oil  vs.  Diamondback Energy

Marathon Oil

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Marathon Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very fragile basic indicators, Marathon Oil may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Diamondback Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamondback Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Diamondback Energy is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Marathon Oil and Diamondback Energy

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

The idea behind Marathon Oil and Diamondback 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.