Correlation Between Matador Resources and Kosmos Energy

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

Diversification Opportunities for Matador Resources and Kosmos Energy

0.02

Correlation Coefficient

Matador Resources  Kosmos Energy

Significant diversification

The 3 months correlation between Matador and Kosmos is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Matador Resources and Kosmos Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kosmos 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 Kosmos Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kosmos Energy has no effect on the direction of Matador Resources i.e., Matador Resources and Kosmos Energy go up and down completely randomly.

Pair Corralation between Matador Resources and Kosmos Energy

Given the investment horizon of 90 days Matador Resources is expected to generate 0.68 times more return on investment than Kosmos Energy. However, Matador Resources is 1.47 times less risky than Kosmos Energy. It trades about 0.1 of its potential returns per unit of risk. Kosmos Energy is currently generating about -0.05 per unit of risk. If you would invest  5,308  in Matador Resources on September 2, 2024 and sell it today you would earn a total of  693.00  from holding Matador Resources or generate 13.06% return on investment over 90 days.

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

Matador Resources  vs.  Kosmos Energy

Matador Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Matador Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating fundamental indicators, Matador Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Kosmos Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kosmos Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Matador Resources and Kosmos Energy

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

The idea behind Matador Resources and Kosmos 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.