Correlation Between Vital Energy and ConocoPhillips

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

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

Diversification Opportunities for Vital Energy and ConocoPhillips

0.89

Correlation Coefficient

Vital Energy  ConocoPhillips

Very poor diversification

The 3 months correlation between Vital and ConocoPhillips is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Vital Energy and ConocoPhillips in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ConocoPhillips and Vital 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 Vital Energy are associated (or correlated) with ConocoPhillips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ConocoPhillips has no effect on the direction of Vital Energy i.e., Vital Energy and ConocoPhillips go up and down completely randomly.

Pair Corralation between Vital Energy and ConocoPhillips

Given the investment horizon of 90 days Vital Energy is expected to generate 2.02 times less return on investment than ConocoPhillips. In addition to that, Vital Energy is 1.8 times more volatile than ConocoPhillips. It trades about 0.01 of its total potential returns per unit of risk. ConocoPhillips is currently generating about 0.05 per unit of volatility. If you would invest  10,611  in ConocoPhillips on February 7, 2024 and sell it today you would earn a total of  1,744  from holding ConocoPhillips or generate 16.44% return on investment over 90 days.

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

Vital Energy  vs.  ConocoPhillips

Vital Energy

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vital Energy are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent essential indicators, Vital Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

ConocoPhillips

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ConocoPhillips are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, ConocoPhillips may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Vital Energy and ConocoPhillips

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

The idea behind Vital Energy and ConocoPhillips 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.