Correlation Between Matador Resources and Obsidian Energy

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

Diversification Opportunities for Matador Resources and Obsidian Energy

0.42

Correlation Coefficient

Matador Resources  Obsidian Energy

Very weak diversification

The 3 months correlation between Matador and Obsidian is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Matador Resources and Obsidian Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Obsidian 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 Obsidian Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Obsidian Energy has no effect on the direction of Matador Resources i.e., Matador Resources and Obsidian Energy go up and down completely randomly.

Pair Corralation between Matador Resources and Obsidian Energy

Given the investment horizon of 90 days Matador Resources is expected to under-perform the Obsidian Energy. But the stock apears to be less risky and, when comparing its historical volatility, Matador Resources is 1.42 times less risky than Obsidian Energy. The stock trades about -0.05 of its potential returns per unit of risk. The Obsidian Energy is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  555.00  in Obsidian Energy on December 29, 2024 and sell it today you would earn a total of  31.00  from holding Obsidian Energy or generate 5.59% return on investment over 90 days.

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

Matador Resources  vs.  Obsidian Energy

Matador Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Matador Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Obsidian Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Obsidian Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, Obsidian Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Matador Resources and Obsidian Energy

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

The idea behind Matador Resources and Obsidian 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.