Correlation Between Baytex Energy and Obsidian Energy

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

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

Diversification Opportunities for Baytex Energy and Obsidian Energy

0.86

Correlation Coefficient

Baytex Energy  Obsidian Energy

Very poor diversification

The 3 months correlation between Baytex and Obsidian is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Baytex Energy Corp and Obsidian Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Obsidian Energy and Baytex 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 Baytex Energy Corp 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 Baytex Energy i.e., Baytex Energy and Obsidian Energy go up and down completely randomly.

Pair Corralation between Baytex Energy and Obsidian Energy

Considering the 90-day investment horizon Baytex Energy is expected to generate 1.71 times less return on investment than Obsidian Energy. In addition to that, Baytex Energy is 1.24 times more volatile than Obsidian Energy. It trades about 0.05 of its total potential returns per unit of risk. Obsidian Energy is currently generating about 0.1 per unit of volatility. If you would invest  680.00  in Obsidian Energy on February 17, 2024 and sell it today you would earn a total of  85.00  from holding Obsidian Energy or generate 12.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Baytex Energy Corp  vs.  Obsidian Energy

Baytex Energy Corp

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Baytex Energy Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Baytex Energy may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Obsidian Energy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Obsidian Energy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, Obsidian Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Baytex Energy and Obsidian Energy

The main advantage of trading using opposite Baytex Energy and Obsidian Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baytex Energy 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 Baytex Energy Corp 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.