Correlation Between APA and Devon Energy

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

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

Diversification Opportunities for APA and Devon Energy

0.59

Correlation Coefficient

APA  Devon Energy

Very weak diversification

The 3 months correlation between APA and Devon is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon Energy and APA 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 APA Corporation 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 APA i.e., APA and Devon Energy go up and down completely randomly.

Pair Corralation between APA and Devon Energy

Assuming the 90 days trading horizon APA Corporation is expected to generate 1.35 times more return on investment than Devon Energy. However, APA is 1.35 times more volatile than Devon Energy. It trades about -0.03 of its potential returns per unit of risk. Devon Energy is currently generating about -0.12 per unit of risk. If you would invest  13,270  in APA Corporation on September 23, 2024 and sell it today you would lose (816.00) from holding APA Corporation or give up 6.15% of portfolio value over 90 days.

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

APA Corp.  vs.  Devon Energy

APA Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days APA Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, APA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with APA and Devon Energy

The main advantage of trading using opposite APA and Devon Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if APA 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 APA Corporation 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.