Correlation Between GeoPark and Coterra Energy

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

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

Diversification Opportunities for GeoPark and Coterra Energy

0.67

Correlation Coefficient

GeoPark  Coterra Energy

Poor diversification

The 3 months correlation between GeoPark and Coterra is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding GeoPark and Coterra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coterra Energy and GeoPark 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 GeoPark are associated (or correlated) with Coterra Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coterra Energy has no effect on the direction of GeoPark i.e., GeoPark and Coterra Energy go up and down completely randomly.

Pair Corralation between GeoPark and Coterra Energy

Given the investment horizon of 90 days GeoPark is expected to generate 1.97 times more return on investment than Coterra Energy. However, GeoPark is 1.97 times more volatile than Coterra Energy. It trades about 0.19 of its potential returns per unit of risk. Coterra Energy is currently generating about 0.12 per unit of risk. If you would invest  800.00  in GeoPark on September 5, 2024 and sell it today you would earn a total of  322.00  from holding GeoPark or generate 40.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

GeoPark  vs.  Coterra Energy

GeoPark

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GeoPark are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, GeoPark disclosed solid returns over the last few months and may actually be approaching a breakup point.

Coterra Energy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Coterra Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Coterra Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GeoPark and Coterra Energy

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

The idea behind GeoPark and Coterra Energy 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.