Correlation Between Diamondback Energy and Ovintiv

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

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

Diversification Opportunities for Diamondback Energy and Ovintiv

0.34

Correlation Coefficient

Diamondback Energy  Ovintiv

Weak diversification

The 3 months correlation between Diamondback and Ovintiv is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Diamondback Energy and Ovintiv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ovintiv 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 Ovintiv. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ovintiv has no effect on the direction of Diamondback Energy i.e., Diamondback Energy and Ovintiv go up and down completely randomly.

Pair Corralation between Diamondback Energy and Ovintiv

Given the investment horizon of 90 days Diamondback Energy is expected to under-perform the Ovintiv. But the stock apears to be less risky and, when comparing its historical volatility, Diamondback Energy is 1.08 times less risky than Ovintiv. The stock trades about -0.04 of its potential returns per unit of risk. The Ovintiv is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,916  in Ovintiv on September 14, 2024 and sell it today you would earn a total of  214.00  from holding Ovintiv or generate 5.46% 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.  Ovintiv

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.

Ovintiv

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ovintiv are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Ovintiv may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Diamondback Energy and Ovintiv

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

The idea behind Diamondback Energy and Ovintiv 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.