Correlation Between Diamondback Energy and Kosmos Energy
Can any of the company-specific risk be diversified away by investing in both Diamondback Energy 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 Diamondback Energy and Kosmos 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 Kosmos Energy, you can compare the effects of market volatilities on Diamondback Energy 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 Diamondback Energy with a short position of Kosmos Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamondback Energy and Kosmos Energy.
Diversification Opportunities for Diamondback Energy and Kosmos Energy
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Diamondback and Kosmos is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Diamondback Energy and Kosmos Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kosmos 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 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 Diamondback Energy i.e., Diamondback Energy and Kosmos Energy go up and down completely randomly.
Pair Corralation between Diamondback Energy and Kosmos Energy
Given the investment horizon of 90 days Diamondback Energy is expected to generate 0.59 times more return on investment than Kosmos Energy. However, Diamondback Energy is 1.7 times less risky than Kosmos Energy. It trades about 0.06 of its potential returns per unit of risk. Kosmos Energy is currently generating about -0.05 per unit of risk. If you would invest 13,678 in Diamondback Energy on August 26, 2024 and sell it today you would earn a total of 4,851 from holding Diamondback Energy or generate 35.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Diamondback Energy vs. Kosmos Energy
Performance |
| Timeline |
| Diamondback Energy |
| Kosmos Energy |
Diamondback Energy and Kosmos Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Diamondback Energy and Kosmos Energy
The main advantage of trading using opposite Diamondback Energy and Kosmos Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamondback Energy 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.| Diamondback Energy vs. Devon Energy | Diamondback Energy vs. Coterra Energy | Diamondback Energy vs. EOG Resources | Diamondback Energy vs. ConocoPhillips |
| Kosmos Energy vs. Devon Energy | Kosmos Energy vs. ConocoPhillips | Kosmos Energy vs. Diamondback Energy | Kosmos Energy vs. Occidental Petroleum |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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