Correlation Between Matador Resources and Obsidian Energy

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

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

Diversification Opportunities for Matador Resources and Obsidian Energy

-0.13

Correlation Coefficient

Matador Resources  Obsidian Energy

Good diversification

The 3 months correlation between Matador and Obsidian is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Matador Resources and Obsidian Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Obsidian Energy and Matador Resources 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 Matador Resources are associated (or correlated) with Obsidian Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Obsidian Energy has no effect on the direction of Matador Resources i.e., Matador Resources and Obsidian Energy go up and down completely randomly.

Pair Corralation between Matador Resources and Obsidian Energy

Given the investment horizon of 90 days Matador Resources is expected to generate 0.88 times more return on investment than Obsidian Energy. However, Matador Resources is 1.13 times less risky than Obsidian Energy. It trades about 0.1 of its potential returns per unit of risk. Obsidian Energy is currently generating about -0.02 per unit of risk. If you would invest  4,945  in Matador Resources on September 12, 2024 and sell it today you would earn a total of  678.00  from holding Matador Resources or generate 13.71% return on investment over 90 days.

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

Matador Resources  vs.  Obsidian Energy

Matador Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Matador Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating fundamental indicators, Matador Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Obsidian Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Matador Resources and Obsidian Energy

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

The idea behind Matador Resources and Obsidian 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.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.