Correlation Between Coterra Energy and GeoPark

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

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

Diversification Opportunities for Coterra Energy and GeoPark

0.55

Correlation Coefficient

Coterra Energy  GeoPark

Very weak diversification

The 3 months correlation between Coterra and GeoPark is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Coterra Energy and GeoPark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GeoPark 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 GeoPark. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GeoPark has no effect on the direction of Coterra Energy i.e., Coterra Energy and GeoPark go up and down completely randomly.

Pair Corralation between Coterra Energy and GeoPark

Given the investment horizon of 90 days Coterra Energy is expected to generate 3.46 times less return on investment than GeoPark. But when comparing it to its historical volatility, Coterra Energy is 1.92 times less risky than GeoPark. It trades about 0.12 of its potential returns per unit of risk. GeoPark is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  747.00  in GeoPark on September 12, 2024 and sell it today you would earn a total of  364.00  from holding GeoPark or generate 48.73% return on investment over 90 days.

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

Coterra Energy  vs.  GeoPark

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.

GeoPark

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GeoPark are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, GeoPark disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coterra Energy and GeoPark

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

The idea behind Coterra Energy and GeoPark 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.