Correlation Between Coterra Energy and Arrow Exploration

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

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

Diversification Opportunities for Coterra Energy and Arrow Exploration

-0.46

Correlation Coefficient

Coterra Energy  Arrow Exploration

Very good diversification

The 3 months correlation between Coterra and Arrow is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Coterra Energy and Arrow Exploration Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Exploration Corp and Coterra 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 Coterra Energy are associated (or correlated) with Arrow Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow Exploration Corp has no effect on the direction of Coterra Energy i.e., Coterra Energy and Arrow Exploration go up and down completely randomly.

Pair Corralation between Coterra Energy and Arrow Exploration

Given the investment horizon of 90 days Coterra Energy is expected to generate 0.18 times more return on investment than Arrow Exploration. However, Coterra Energy is 5.71 times less risky than Arrow Exploration. It trades about 0.12 of its potential returns per unit of risk. Arrow Exploration Corp is currently generating about -0.01 per unit of risk. If you would invest  2,273  in Coterra Energy on September 14, 2024 and sell it today you would earn a total of  262.00  from holding Coterra Energy or generate 11.53% return on investment over 90 days.

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

Coterra Energy  vs.  Arrow Exploration Corp

Coterra Energy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Coterra Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Coterra Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Arrow Exploration Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arrow Exploration Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Arrow Exploration is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Coterra Energy and Arrow Exploration

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

The idea behind Coterra Energy and Arrow Exploration Corp 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.