Correlation Between Denbury Resources and Magnolia Oil

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

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

Diversification Opportunities for Denbury Resources and Magnolia Oil

-0.46

Correlation Coefficient

Denbury Resources  Magnolia Oil

Very good diversification

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

Pair Corralation between Denbury Resources and Magnolia Oil

If you would invest  2,471  in Magnolia Oil Gas on September 17, 2024 and sell it today you would lose (10.00) from holding Magnolia Oil Gas or give up 0.4% of portfolio value over 90 days.

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

Denbury Resources  vs.  Magnolia Oil Gas

Denbury Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Denbury Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Denbury Resources is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Magnolia Oil Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magnolia Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Magnolia Oil is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Denbury Resources and Magnolia Oil

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

The idea behind Denbury Resources and Magnolia Oil Gas 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.