Correlation Between Earthstone Energy and Pioneer Natural

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

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

Diversification Opportunities for Earthstone Energy and Pioneer Natural

0.6

Correlation Coefficient

Earthstone Energy  Pioneer Natural

Poor diversification

The 3 months correlation between Earthstone and Pioneer is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Earthstone Energy and Pioneer Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pioneer Natural Resources and Earthstone 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 Earthstone Energy are associated (or correlated) with Pioneer Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pioneer Natural Resources has no effect on the direction of Earthstone Energy i.e., Earthstone Energy and Pioneer Natural go up and down completely randomly.

Pair Corralation between Earthstone Energy and Pioneer Natural

If you would invest  21,803  in Pioneer Natural Resources on September 3, 2024 and sell it today you would earn a total of  0.00  from holding Pioneer Natural Resources or generate 0.0% return on investment over 90 days.

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

Earthstone Energy  vs.  Pioneer Natural Resources

Earthstone Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Earthstone Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Earthstone Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pioneer Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pioneer Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Pioneer Natural is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Earthstone Energy and Pioneer Natural

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

The idea behind Earthstone Energy and Pioneer Natural Resources 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..