Correlation Between Murphy Oil and Matador Resources

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

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

Diversification Opportunities for Murphy Oil and Matador Resources

0.01

Correlation Coefficient

Murphy Oil  Matador Resources

Significant diversification

The 3 months correlation between Murphy and Matador is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Murphy Oil and Matador Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matador Resources and Murphy Oil 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 Murphy Oil are associated (or correlated) with Matador Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matador Resources has no effect on the direction of Murphy Oil i.e., Murphy Oil and Matador Resources go up and down completely randomly.

Pair Corralation between Murphy Oil and Matador Resources

Considering the 90-day investment horizon Murphy Oil is expected to under-perform the Matador Resources. But the stock apears to be less risky and, when comparing its historical volatility, Murphy Oil is 1.18 times less risky than Matador Resources. The stock trades about -0.06 of its potential returns per unit of risk. The Matador Resources is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  5,308  in Matador Resources on September 2, 2024 and sell it today you would earn a total of  693.00  from holding Matador Resources or generate 13.06% return on investment over 90 days.

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

Murphy Oil  vs.  Matador Resources

Murphy Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Murphy Oil has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

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.

Pair Trading with Murphy Oil and Matador Resources

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

The idea behind Murphy Oil and Matador 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.