Correlation Between Matador Resources and Diamondback Energy

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

Diversification Opportunities for Matador Resources and Diamondback Energy

-0.02

Correlation Coefficient

Matador Resources  Diamondback Energy

Good diversification

The 3 months correlation between Matador and Diamondback is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Matador Resources and Diamondback Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondback 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 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 Matador Resources i.e., Matador Resources and Diamondback Energy go up and down completely randomly.

Pair Corralation between Matador Resources and Diamondback Energy

Given the investment horizon of 90 days Matador Resources is expected to generate 1.24 times more return on investment than Diamondback Energy. However, Matador Resources is 1.24 times more volatile than Diamondback Energy. It trades about -0.27 of its potential returns per unit of risk. Diamondback Energy is currently generating about -0.45 per unit of risk. If you would invest  5,919  in Matador Resources on September 25, 2024 and sell it today you would lose (583.00) from holding Matador Resources or give up 9.85% of portfolio value over 90 days.

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

Matador Resources  vs.  Diamondback Energy

Matador Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Matador Resources are ranked lower than 3 (%) 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 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 unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Matador Resources and Diamondback Energy

The main advantage of trading using opposite Matador Resources and Diamondback Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Matador Resources 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 Matador Resources 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.