Correlation Between Diamondback Energy and Chesapeake Energy

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

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

Diversification Opportunities for Diamondback Energy and Chesapeake Energy

0.62

Correlation Coefficient

Diamondback Energy  Chesapeake Energy

Poor diversification

The @@bw1eo months correlation between Diamondback and Chesapeake is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Diamondback Energy and Chesapeake Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Energy Corp and Diamondback 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 Diamondback Energy are associated (or correlated) with Chesapeake Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chesapeake Energy Corp has no effect on the direction of Diamondback Energy i.e., Diamondback Energy and Chesapeake Energy go up and down completely randomly.

Pair Corralation between Diamondback Energy and Chesapeake Energy

Given the investment horizon of 90 days Diamondback Energy is expected to generate 0.89 times more return on investment than Chesapeake Energy. However, Diamondback Energy is 1.12 times less risky than Chesapeake Energy. It trades about 0.13 of its potential returns per unit of risk. Chesapeake Energy Corp is currently generating about 0.04 per unit of risk. If you would invest  12,642  in Diamondback Energy on February 3, 2024 and sell it today you would earn a total of  7,508  from holding Diamondback Energy or generate 59.39% return on investment over 90 days.

Time Period	@@bw1EO Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Diamondback Energy  vs.  Chesapeake Energy Corp

Diamondback Energy

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Diamondback Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Diamondback Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Chesapeake Energy Corp

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Chesapeake Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Diamondback Energy and Chesapeake Energy

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

The idea behind Diamondback Energy and Chesapeake 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 CEOs Directory module to screen CEOs from public companies around the world.