Correlation Between APA and Matador Resources

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

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

Diversification Opportunities for APA and Matador Resources

0.88

Correlation Coefficient

APA  Matador Resources

Very poor diversification

The 3 months correlation between APA and Matador is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and Matador Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matador Resources and APA 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 APA Corporation 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 APA i.e., APA and Matador Resources go up and down completely randomly.

Pair Corralation between APA and Matador Resources

Considering the 90-day investment horizon APA Corporation is expected to generate 1.04 times more return on investment than Matador Resources. However, APA is 1.04 times more volatile than Matador Resources. It trades about -0.03 of its potential returns per unit of risk. Matador Resources is currently generating about -0.08 per unit of risk. If you would invest  3,031  in APA Corporation on March 7, 2024 and sell it today you would lose (131.00) from holding APA Corporation or give up 4.32% of portfolio value over 90 days.

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

APA Corp.  vs.  Matador Resources

APA Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days APA Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, APA is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Matador Resources

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with APA and Matador Resources

The main advantage of trading using opposite APA and Matador Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if APA 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 APA Corporation 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.