Correlation Between SandRidge Energy and BKV

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

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

Diversification Opportunities for SandRidge Energy and BKV

0.23

Correlation Coefficient

SandRidge Energy  BKV

Modest diversification

The 3 months correlation between SandRidge and BKV is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding SandRidge Energy and BKV Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BKV Corporation and SandRidge 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 SandRidge Energy are associated (or correlated) with BKV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BKV Corporation has no effect on the direction of SandRidge Energy i.e., SandRidge Energy and BKV go up and down completely randomly.

Pair Corralation between SandRidge Energy and BKV

Allowing for the 90-day total investment horizon SandRidge Energy is expected to generate 3.44 times less return on investment than BKV. But when comparing it to its historical volatility, SandRidge Energy is 1.07 times less risky than BKV. It trades about 0.14 of its potential returns per unit of risk. BKV Corporation is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest  1,787  in BKV Corporation on September 5, 2024 and sell it today you would earn a total of  389.00  from holding BKV Corporation or generate 21.77% return on investment over 90 days.

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

SandRidge Energy  vs.  BKV Corp.

SandRidge Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

BKV Corporation

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BKV Corporation are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, BKV showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SandRidge Energy and BKV

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

The idea behind SandRidge Energy and BKV Corporation 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.