Correlation Between Matador Resources and SandRidge Energy

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

Diversification Opportunities for Matador Resources and SandRidge Energy

0.69

Correlation Coefficient

Matador Resources  SandRidge Energy

Poor diversification

The 3 months correlation between Matador and SandRidge is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Matador Resources and SandRidge Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SandRidge 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 SandRidge Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SandRidge Energy has no effect on the direction of Matador Resources i.e., Matador Resources and SandRidge Energy go up and down completely randomly.

Pair Corralation between Matador Resources and SandRidge Energy

Given the investment horizon of 90 days Matador Resources is expected to generate 38.43 times less return on investment than SandRidge Energy. In addition to that, Matador Resources is 1.11 times more volatile than SandRidge Energy. It trades about 0.0 of its total potential returns per unit of risk. SandRidge Energy is currently generating about 0.09 per unit of volatility. If you would invest  1,050  in SandRidge Energy on December 21, 2024 and sell it today you would earn a total of  118.00  from holding SandRidge Energy or generate 11.24% 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.  SandRidge 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 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.

SandRidge Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SandRidge Energy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, SandRidge Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Matador Resources and SandRidge Energy

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

The idea behind Matador Resources and SandRidge 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.