Correlation Between Obsidian Energy and Matador Resources

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

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

Diversification Opportunities for Obsidian Energy and Matador Resources

0.22

Correlation Coefficient

Obsidian Energy  Matador Resources

Modest diversification

The 3 months correlation between Obsidian and Matador is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Obsidian Energy and Matador Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matador Resources and Obsidian Energy 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 Obsidian Energy 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 Obsidian Energy i.e., Obsidian Energy and Matador Resources go up and down completely randomly.

Pair Corralation between Obsidian Energy and Matador Resources

Considering the 90-day investment horizon Obsidian Energy is expected to under-perform the Matador Resources. In addition to that, Obsidian Energy is 1.14 times more volatile than Matador Resources. It trades about -0.05 of its total potential returns per unit of risk. Matador Resources is currently generating about 0.09 per unit of volatility. If you would invest  5,308  in Matador Resources on August 31, 2024 and sell it today you would earn a total of  648.00  from holding Matador Resources or generate 12.21% return on investment over 90 days.

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

Obsidian Energy  vs.  Matador Resources

Obsidian Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Obsidian Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Matador Resources

Risk-Adjusted Performance

7 of 100

Insignificant

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 weak fundamental indicators, Matador Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Obsidian Energy and Matador Resources

The main advantage of trading using opposite Obsidian Energy and Matador Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Obsidian Energy 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 Obsidian Energy 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.