Correlation Between Devon Energy and Reconnaissance Energy

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Can any of the company-specific risk be diversified away by investing in both Devon Energy and Reconnaissance 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 Devon Energy and Reconnaissance Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Devon Energy and Reconnaissance Energy Africa, you can compare the effects of market volatilities on Devon Energy and Reconnaissance 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 Devon Energy with a short position of Reconnaissance Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Devon Energy and Reconnaissance Energy.

Diversification Opportunities for Devon Energy and Reconnaissance Energy

-0.39
  Correlation Coefficient

Very good diversification

The 3 months correlation between Devon and Reconnaissance is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Devon Energy and Reconnaissance Energy Africa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reconnaissance Energy and Devon 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 Devon Energy are associated (or correlated) with Reconnaissance Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reconnaissance Energy has no effect on the direction of Devon Energy i.e., Devon Energy and Reconnaissance Energy go up and down completely randomly.

Pair Corralation between Devon Energy and Reconnaissance Energy

Considering the 90-day investment horizon Devon Energy is expected to under-perform the Reconnaissance Energy. But the stock apears to be less risky and, when comparing its historical volatility, Devon Energy is 2.16 times less risky than Reconnaissance Energy. The stock trades about -0.23 of its potential returns per unit of risk. The Reconnaissance Energy Africa is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  72.00  in Reconnaissance Energy Africa on September 19, 2024 and sell it today you would earn a total of  1.00  from holding Reconnaissance Energy Africa or generate 1.39% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy98.44%
ValuesDaily Returns

Devon Energy  vs.  Reconnaissance Energy Africa

 Performance 
       Timeline  
Devon Energy 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Devon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.
Reconnaissance Energy 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Reconnaissance Energy Africa are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Reconnaissance Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Devon Energy and Reconnaissance Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Devon Energy and Reconnaissance Energy

The main advantage of trading using opposite Devon Energy and Reconnaissance Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Devon Energy position performs unexpectedly, Reconnaissance 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 Reconnaissance Energy will offset losses from the drop in Reconnaissance Energy's long position.
The idea behind Devon Energy and Reconnaissance Energy Africa 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.

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