Correlation Between Baytex Energy and Vital Energy

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

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

Diversification Opportunities for Baytex Energy and Vital Energy

-0.05

Correlation Coefficient

Baytex Energy  Vital Energy

Good diversification

The 3 months correlation between Baytex and Vital is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Baytex Energy Corp and Vital Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vital Energy and Baytex 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 Baytex Energy Corp are associated (or correlated) with Vital Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vital Energy has no effect on the direction of Baytex Energy i.e., Baytex Energy and Vital Energy go up and down completely randomly.

Pair Corralation between Baytex Energy and Vital Energy

Considering the 90-day investment horizon Baytex Energy Corp is expected to under-perform the Vital Energy. But the stock apears to be less risky and, when comparing its historical volatility, Baytex Energy Corp is 1.38 times less risky than Vital Energy. The stock trades about -0.11 of its potential returns per unit of risk. The Vital Energy is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,643  in Vital Energy on September 12, 2024 and sell it today you would earn a total of  418.00  from holding Vital Energy or generate 15.82% return on investment over 90 days.

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

Baytex Energy Corp  vs.  Vital Energy

Baytex Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baytex Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Vital Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vital Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, Vital Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Baytex Energy and Vital Energy

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

The idea behind Baytex Energy Corp and Vital 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.

Check out your portfolio center.

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.