Correlation Between Diamondback Energy and Magnolia Oil

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

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

Diversification Opportunities for Diamondback Energy and Magnolia Oil

0.39

Correlation Coefficient

Diamondback Energy  Magnolia Oil

Weak diversification

The 3 months correlation between Diamondback and Magnolia is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Diamondback Energy 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 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 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 Diamondback Energy i.e., Diamondback Energy and Magnolia Oil go up and down completely randomly.

Pair Corralation between Diamondback Energy and Magnolia Oil

Given the investment horizon of 90 days Diamondback Energy is expected to under-perform the Magnolia Oil. In addition to that, Diamondback Energy is 1.1 times more volatile than Magnolia Oil Gas. It trades about -0.02 of its total potential returns per unit of risk. Magnolia Oil Gas is currently generating about 0.12 per unit of volatility. If you would invest  2,400  in Magnolia Oil Gas on September 4, 2024 and sell it today you would earn a total of  337.00  from holding Magnolia Oil Gas or generate 14.04% return on investment over 90 days.

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

Diamondback Energy  vs.  Magnolia Oil Gas

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.

Magnolia Oil Gas

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Magnolia Oil Gas are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical and fundamental indicators, Magnolia Oil showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diamondback Energy and Magnolia Oil

The main advantage of trading using opposite Diamondback Energy and Magnolia Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamondback Energy 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 Diamondback Energy 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.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.