Correlation Between APA and Kosmos Energy

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

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

Diversification Opportunities for APA and Kosmos Energy

0.27

Correlation Coefficient

APA  Kosmos Energy

Modest diversification

The 3 months correlation between APA and Kosmos is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and Kosmos Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kosmos Energy 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 Kosmos Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kosmos Energy has no effect on the direction of APA i.e., APA and Kosmos Energy go up and down completely randomly.

Pair Corralation between APA and Kosmos Energy

Considering the 90-day investment horizon APA Corporation is expected to under-perform the Kosmos Energy. But the stock apears to be less risky and, when comparing its historical volatility, APA Corporation is 1.21 times less risky than Kosmos Energy. The stock trades about 0.0 of its potential returns per unit of risk. The Kosmos Energy is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  738.00  in Kosmos Energy on January 26, 2024 and sell it today you would lose (143.00) from holding Kosmos Energy or give up 19.38% of portfolio value over 90 days.

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

APA Corp.  vs.  Kosmos Energy

APA Corporation

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in APA Corporation are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Kosmos Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kosmos Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Kosmos Energy is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with APA and Kosmos Energy

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

The idea behind APA Corporation and Kosmos 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..