Can any of the company-specific risk be diversified away by investing in both Chesapeake Energy 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 Chesapeake Energy and Matador Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chesapeake Energy Corp and Matador Resources, you can compare the effects of market volatilities on Chesapeake Energy 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 Chesapeake Energy with a short position of Matador Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chesapeake Energy and Matador Resources.
Diversification Opportunities for Chesapeake Energy and Matador Resources
The 3 months correlation between Chesapeake and Matador is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Energy Corp and Matador Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matador Resources and Chesapeake 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 Chesapeake Energy Corp 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 Chesapeake Energy i.e., Chesapeake Energy and Matador Resources go up and down completely randomly.
Pair Corralation between Chesapeake Energy and Matador Resources
Considering the 90-day investment horizon Chesapeake Energy Corp is expected to generate 0.7 times more return on investment than Matador Resources. However, Chesapeake Energy Corp is 1.43 times less risky than Matador Resources. It trades about 0.12 of its potential returns per unit of risk. Matador Resources is currently generating about -0.08 per unit of risk. If you would invest 8,128 in Chesapeake Energy Corp on March 6, 2024 and sell it today you would earn a total of 768.00 from holding Chesapeake Energy Corp or generate 9.45% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Energy Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent technical indicators, Chesapeake Energy may actually be approaching a critical reversion point that can send shares even higher in July 2024.
Over the last 90 days Matador Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest inconsistent 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.