Correlation Between Diamondback Energy and Devon Energy

Can any of the company-specific risk be diversified away by investing in both Diamondback Energy and Devon 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 Devon 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 Devon Energy, you can compare the effects of market volatilities on Diamondback Energy and Devon 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 Devon Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamondback Energy and Devon Energy.

Diversification Opportunities for Diamondback Energy and Devon Energy

0.94

Correlation Coefficient

Diamondback Energy  Devon Energy

Almost no diversification

The 3 months correlation between Diamondback and Devon is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Diamondback Energy and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon Energy 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 Devon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Devon Energy has no effect on the direction of Diamondback Energy i.e., Diamondback Energy and Devon Energy go up and down completely randomly.

Pair Corralation between Diamondback Energy and Devon Energy

Given the investment horizon of 90 days Diamondback Energy is expected to generate 0.88 times more return on investment than Devon Energy. However, Diamondback Energy is 1.14 times less risky than Devon Energy. It trades about 0.23 of its potential returns per unit of risk. Devon Energy is currently generating about 0.16 per unit of risk. If you would invest  19,945  in Diamondback Energy on January 30, 2024 and sell it today you would earn a total of  831.00  from holding Diamondback Energy or generate 4.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Diamondback Energy  vs.  Devon Energy

Diamondback Energy

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Diamondback Energy are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Diamondback Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Devon Energy

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Devon Energy are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Devon Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diamondback Energy and Devon Energy

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

The idea behind Diamondback Energy and Devon 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.