Correlation Between SandRidge Energy and Matador Resources

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

Diversification Opportunities for SandRidge Energy and Matador Resources

0.69

Correlation Coefficient

SandRidge Energy  Matador Resources

Poor diversification

The 3 months correlation between SandRidge and Matador is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding SandRidge Energy and Matador Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matador Resources and SandRidge 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 SandRidge 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 SandRidge Energy i.e., SandRidge Energy and Matador Resources go up and down completely randomly.

Pair Corralation between SandRidge Energy and Matador Resources

Allowing for the 90-day total investment horizon SandRidge Energy is expected to generate 0.9 times more return on investment than Matador Resources. However, SandRidge Energy is 1.11 times less risky than Matador Resources. It trades about 0.09 of its potential returns per unit of risk. Matador Resources is currently generating about 0.0 per unit of risk. 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

SandRidge Energy  vs.  Matador Resources

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.

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 SandRidge Energy and Matador Resources

The main advantage of trading using opposite SandRidge Energy and Matador Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SandRidge 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 SandRidge 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.