Correlation Between ConocoPhillips and Diamondback Energy

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

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

Diversification Opportunities for ConocoPhillips and Diamondback Energy

0.87

Correlation Coefficient

ConocoPhillips  Diamondback Energy

Very poor diversification

The 3 months correlation between ConocoPhillips and Diamondback is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding ConocoPhillips and Diamondback Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondback Energy and ConocoPhillips 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 ConocoPhillips are associated (or correlated) with Diamondback Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondback Energy has no effect on the direction of ConocoPhillips i.e., ConocoPhillips and Diamondback Energy go up and down completely randomly.

Pair Corralation between ConocoPhillips and Diamondback Energy

Considering the 90-day investment horizon ConocoPhillips is expected to generate 3.57 times less return on investment than Diamondback Energy. But when comparing it to its historical volatility, ConocoPhillips is 1.06 times less risky than Diamondback Energy. It trades about 0.04 of its potential returns per unit of risk. Diamondback Energy is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  14,222  in Diamondback Energy on February 2, 2024 and sell it today you would earn a total of  5,541  from holding Diamondback Energy or generate 38.96% return on investment over 90 days.

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

ConocoPhillips  vs.  Diamondback Energy

ConocoPhillips

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ConocoPhillips are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, ConocoPhillips may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Diamondback Energy

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Diamondback Energy are ranked lower than 21 (%) 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.

Pair Trading with ConocoPhillips and Diamondback Energy

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

The idea behind ConocoPhillips and Diamondback 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.