Correlation Between Battalion Oil and Earthstone Energy

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

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

Diversification Opportunities for Battalion Oil and Earthstone Energy

-0.76

Correlation Coefficient

Battalion Oil  Earthstone Energy

Pay attention - limited upside

The 3 months correlation between Battalion and Earthstone is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Battalion Oil Corp and Earthstone Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Earthstone Energy and Battalion Oil 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 Battalion Oil Corp are associated (or correlated) with Earthstone Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Earthstone Energy has no effect on the direction of Battalion Oil i.e., Battalion Oil and Earthstone Energy go up and down completely randomly.

Pair Corralation between Battalion Oil and Earthstone Energy

If you would invest  305.00  in Battalion Oil Corp on September 17, 2024 and sell it today you would lose (3.00) from holding Battalion Oil Corp or give up 0.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	1.54%
Values	Daily Returns

Battalion Oil Corp  vs.  Earthstone Energy

Battalion Oil Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Battalion Oil Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Battalion Oil disclosed solid returns over the last few months and may actually be approaching a breakup point.

Earthstone Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Earthstone Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Earthstone Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Battalion Oil and Earthstone Energy

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

The idea behind Battalion Oil Corp and Earthstone 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.