Correlation Between Callon Petroleum and Southwestern Energy

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

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

Diversification Opportunities for Callon Petroleum and Southwestern Energy

-0.16

Correlation Coefficient

Callon Petroleum  Southwestern Energy

Good diversification

The 3 months correlation between Callon and Southwestern is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Callon Petroleum and Southwestern Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwestern Energy and Callon Petroleum 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 Callon Petroleum are associated (or correlated) with Southwestern Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwestern Energy has no effect on the direction of Callon Petroleum i.e., Callon Petroleum and Southwestern Energy go up and down completely randomly.

Pair Corralation between Callon Petroleum and Southwestern Energy

Considering the 90-day investment horizon Callon Petroleum is expected to generate 1.57 times more return on investment than Southwestern Energy. However, Callon Petroleum is 1.57 times more volatile than Southwestern Energy. It trades about 0.32 of its potential returns per unit of risk. Southwestern Energy is currently generating about 0.04 per unit of risk. If you would invest  3,190  in Callon Petroleum on February 5, 2024 and sell it today you would earn a total of  386.00  from holding Callon Petroleum or generate 12.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	41.86%
Values	Daily Returns

Callon Petroleum  vs.  Southwestern Energy

Callon Petroleum

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Callon Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather unsteady basic indicators, Callon Petroleum exhibited solid returns over the last few months and may actually be approaching a breakup point.

Southwestern Energy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southwestern Energy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Southwestern Energy may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Callon Petroleum and Southwestern Energy

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

The idea behind Callon Petroleum and Southwestern 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.