Correlation Between Matador Resources and Diversified Energy

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

Diversification Opportunities for Matador Resources and Diversified Energy

0.74

Correlation Coefficient

Matador Resources  Diversified Energy

Poor diversification

The 3 months correlation between Matador and Diversified is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Matador Resources and Diversified Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified 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 Diversified Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Energy has no effect on the direction of Matador Resources i.e., Matador Resources and Diversified Energy go up and down completely randomly.

Pair Corralation between Matador Resources and Diversified Energy

Given the investment horizon of 90 days Matador Resources is expected to generate 2.94 times less return on investment than Diversified Energy. But when comparing it to its historical volatility, Matador Resources is 1.41 times less risky than Diversified Energy. It trades about 0.13 of its potential returns per unit of risk. Diversified Energy is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  1,225  in Diversified Energy on October 6, 2024 and sell it today you would earn a total of  490.00  from holding Diversified Energy or generate 40.0% return on investment over 90 days.

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

Matador Resources  vs.  Diversified Energy

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.

Diversified Energy

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Energy are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Diversified Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Matador Resources and Diversified Energy

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

The idea behind Matador Resources and Diversified 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..