Correlation Between Ring Energy and Baytex Energy

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

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

Diversification Opportunities for Ring Energy and Baytex Energy

0.85

Correlation Coefficient

Ring Energy  Baytex Energy

Very poor diversification

The 3 months correlation between Ring and Baytex is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Ring Energy and Baytex Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baytex Energy Corp and Ring 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 Ring Energy are associated (or correlated) with Baytex Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baytex Energy Corp has no effect on the direction of Ring Energy i.e., Ring Energy and Baytex Energy go up and down completely randomly.

Pair Corralation between Ring Energy and Baytex Energy

Considering the 90-day investment horizon Ring Energy is expected to under-perform the Baytex Energy. In addition to that, Ring Energy is 1.21 times more volatile than Baytex Energy Corp. It trades about -0.1 of its total potential returns per unit of risk. Baytex Energy Corp is currently generating about -0.11 per unit of volatility. If you would invest  305.00  in Baytex Energy Corp on September 16, 2024 and sell it today you would lose (55.00) from holding Baytex Energy Corp or give up 18.03% of portfolio value over 90 days.

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

Ring Energy  vs.  Baytex Energy Corp

Ring Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ring Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Baytex Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baytex Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Ring Energy and Baytex Energy

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

The idea behind Ring Energy and Baytex Energy Corp 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.