Correlation Between Matador Resources and Coterra Energy

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

Diversification Opportunities for Matador Resources and Coterra Energy

0.86

Correlation Coefficient

Matador Resources  Coterra Energy

Very poor diversification

The 3 months correlation between Matador and Coterra is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Matador Resources and Coterra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coterra Energy 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 Coterra Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coterra Energy has no effect on the direction of Matador Resources i.e., Matador Resources and Coterra Energy go up and down completely randomly.

Pair Corralation between Matador Resources and Coterra Energy

Given the investment horizon of 90 days Matador Resources is expected to generate 1.24 times more return on investment than Coterra Energy. However, Matador Resources is 1.24 times more volatile than Coterra Energy. It trades about -0.2 of its potential returns per unit of risk. Coterra Energy is currently generating about -0.28 per unit of risk. If you would invest  5,777  in Matador Resources on September 20, 2024 and sell it today you would lose (518.00) from holding Matador Resources or give up 8.97% of portfolio value over 90 days.

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

Matador Resources  vs.  Coterra Energy

Matador Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Matador Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, Matador Resources is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Coterra Energy

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Coterra Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Coterra Energy is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Matador Resources and Coterra Energy

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

The idea behind Matador Resources and Coterra 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.