Correlation Between Diamondback Energy and Civitas Resources

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

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

Diversification Opportunities for Diamondback Energy and Civitas Resources

0.57

Correlation Coefficient

Diamondback Energy  Civitas Resources

Very weak diversification

The 3 months correlation between Diamondback and Civitas is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Diamondback Energy and Civitas Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Civitas Resources and Diamondback 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 Diamondback Energy are associated (or correlated) with Civitas Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Civitas Resources has no effect on the direction of Diamondback Energy i.e., Diamondback Energy and Civitas Resources go up and down completely randomly.

Pair Corralation between Diamondback Energy and Civitas Resources

Given the investment horizon of 90 days Diamondback Energy is expected to generate 1.1 times more return on investment than Civitas Resources. However, Diamondback Energy is 1.1 times more volatile than Civitas Resources. It trades about -0.02 of its potential returns per unit of risk. Civitas Resources is currently generating about -0.07 per unit of risk. If you would invest  18,337  in Diamondback Energy on September 4, 2024 and sell it today you would lose (761.00) from holding Diamondback Energy or give up 4.15% of portfolio value over 90 days.

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

Diamondback Energy  vs.  Civitas Resources

Diamondback Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Civitas Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Civitas Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Diamondback Energy and Civitas Resources

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

The idea behind Diamondback Energy and Civitas 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.