Correlation Between North European and Matador Resources

Can any of the company-specific risk be diversified away by investing in both North European and Matador Resources 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 North European and Matador Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between North European Oil and Matador Resources, you can compare the effects of market volatilities on North European and Matador Resources 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 North European with a short position of Matador Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of North European and Matador Resources.

Diversification Opportunities for North European and Matador Resources

0.44

Correlation Coefficient

North European  Matador Resources

Very weak diversification

The 3 months correlation between North and Matador is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding North European Oil and Matador Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matador Resources and North European 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 North European Oil are associated (or correlated) with Matador Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matador Resources has no effect on the direction of North European i.e., North European and Matador Resources go up and down completely randomly.

Pair Corralation between North European and Matador Resources

Considering the 90-day investment horizon North European Oil is expected to generate 1.47 times more return on investment than Matador Resources. However, North European is 1.47 times more volatile than Matador Resources. It trades about 0.09 of its potential returns per unit of risk. Matador Resources is currently generating about -0.03 per unit of risk. If you would invest  389.00  in North European Oil on December 28, 2024 and sell it today you would earn a total of  69.00  from holding North European Oil or generate 17.74% return on investment over 90 days.

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

North European Oil  vs.  Matador Resources

North European Oil

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North European Oil are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, North European unveiled solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with North European and Matador Resources

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

The idea behind North European Oil and Matador Resources 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 Transaction History module to view history of all your transactions and understand their impact on performance.