Correlation Between Earthstone Energy and Obsidian Energy

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

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

Diversification Opportunities for Earthstone Energy and Obsidian Energy

-0.63

Correlation Coefficient

Earthstone Energy  Obsidian Energy

Excellent diversification

The 3 months correlation between Earthstone and Obsidian is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Earthstone Energy and Obsidian Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Obsidian Energy and Earthstone 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 Earthstone Energy are associated (or correlated) with Obsidian Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Obsidian Energy has no effect on the direction of Earthstone Energy i.e., Earthstone Energy and Obsidian Energy go up and down completely randomly.

Pair Corralation between Earthstone Energy and Obsidian Energy

Given the investment horizon of 90 days Earthstone Energy is expected to generate 1.11 times more return on investment than Obsidian Energy. However, Earthstone Energy is 1.11 times more volatile than Obsidian Energy. It trades about 0.05 of its potential returns per unit of risk. Obsidian Energy is currently generating about 0.0 per unit of risk. If you would invest  1,304  in Earthstone Energy on September 23, 2024 and sell it today you would earn a total of  228.00  from holding Earthstone Energy or generate 17.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	28.17%
Values	Daily Returns

Earthstone Energy  vs.  Obsidian Energy

Earthstone Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Earthstone Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Earthstone Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Obsidian Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Obsidian Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Earthstone Energy and Obsidian Energy

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

The idea behind Earthstone Energy and Obsidian 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.