Correlation Between Matador Resources and Baytex Energy

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

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

Diversification Opportunities for Matador Resources and Baytex Energy

-0.1

Correlation Coefficient

Matador Resources  Baytex Energy

Good diversification

The 3 months correlation between Matador and Baytex is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Matador Resources and Baytex Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baytex Energy Corp and Matador Resources 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 Matador Resources are associated (or correlated) with Baytex Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baytex Energy Corp has no effect on the direction of Matador Resources i.e., Matador Resources and Baytex Energy go up and down completely randomly.

Pair Corralation between Matador Resources and Baytex Energy

Given the investment horizon of 90 days Matador Resources is expected to generate 0.88 times more return on investment than Baytex Energy. However, Matador Resources is 1.13 times less risky than Baytex Energy. It trades about 0.07 of its potential returns per unit of risk. Baytex Energy Corp is currently generating about -0.14 per unit of risk. If you would invest  5,480  in Matador Resources on October 6, 2024 and sell it today you would earn a total of  427.00  from holding Matador Resources or generate 7.79% return on investment over 90 days.

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

Matador Resources  vs.  Baytex Energy Corp

Matador Resources

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Matador Resources are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental indicators, Matador Resources may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Baytex Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baytex Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Matador Resources and Baytex Energy

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

The idea behind Matador Resources and Baytex Energy Corp 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.