Correlation Between Magnolia Oil and Earthstone Energy

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

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

Diversification Opportunities for Magnolia Oil and Earthstone Energy

-0.23

Correlation Coefficient

Magnolia Oil  Earthstone Energy

Very good diversification

The 3 months correlation between Magnolia and Earthstone is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Magnolia Oil Gas and Earthstone Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Earthstone Energy and Magnolia Oil 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 Magnolia Oil Gas are associated (or correlated) with Earthstone Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Earthstone Energy has no effect on the direction of Magnolia Oil i.e., Magnolia Oil and Earthstone Energy go up and down completely randomly.

Pair Corralation between Magnolia Oil and Earthstone Energy

Considering the 90-day investment horizon Magnolia Oil is expected to generate 4.61 times less return on investment than Earthstone Energy. But when comparing it to its historical volatility, Magnolia Oil Gas is 1.5 times less risky than Earthstone Energy. It trades about 0.02 of its potential returns per unit of risk. Earthstone Energy is currently generating about 0.05 of returns per unit of risk over similar time horizon. 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	Insignificant
Accuracy	28.17%
Values	Daily Returns

Magnolia Oil Gas  vs.  Earthstone Energy

Magnolia Oil Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magnolia Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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.

Pair Trading with Magnolia Oil and Earthstone Energy

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

The idea behind Magnolia Oil Gas and Earthstone 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.