Correlation Between Range Resources and Devon Energy

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

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

Diversification Opportunities for Range Resources and Devon Energy

-0.47

Correlation Coefficient

Range Resources  Devon Energy

Very good diversification

The 3 months correlation between Range and Devon is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Range Resources Corp and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon Energy and Range 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 Range Resources Corp are associated (or correlated) with Devon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Devon Energy has no effect on the direction of Range Resources i.e., Range Resources and Devon Energy go up and down completely randomly.

Pair Corralation between Range Resources and Devon Energy

Considering the 90-day investment horizon Range Resources Corp is expected to generate 1.16 times more return on investment than Devon Energy. However, Range Resources is 1.16 times more volatile than Devon Energy. It trades about 0.17 of its potential returns per unit of risk. Devon Energy is currently generating about -0.11 per unit of risk. If you would invest  2,883  in Range Resources Corp on September 3, 2024 and sell it today you would earn a total of  608.00  from holding Range Resources Corp or generate 21.09% return on investment over 90 days.

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

Range Resources Corp  vs.  Devon Energy

Range Resources Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Range Resources Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Range Resources exhibited solid returns over the last few months and may actually be approaching a breakup point.

Devon Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Devon 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 healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Range Resources and Devon Energy

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

The idea behind Range Resources Corp and Devon 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.