Correlation Between Devon Energy and Arca Continental

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

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

Diversification Opportunities for Devon Energy and Arca Continental

-0.95

Correlation Coefficient

Devon Energy  Arca Continental

Pay attention - limited upside

The 3 months correlation between Devon and Arca is -0.95. Overlapping area represents the amount of risk that can be diversified away by holding Devon Energy and Arca Continental SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arca Continental SAB and Devon 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 Devon Energy are associated (or correlated) with Arca Continental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arca Continental SAB has no effect on the direction of Devon Energy i.e., Devon Energy and Arca Continental go up and down completely randomly.

Pair Corralation between Devon Energy and Arca Continental

Assuming the 90 days trading horizon Devon Energy is expected to generate 0.72 times more return on investment than Arca Continental. However, Devon Energy is 1.38 times less risky than Arca Continental. It trades about -0.09 of its potential returns per unit of risk. Arca Continental SAB is currently generating about -0.07 per unit of risk. If you would invest  86,950  in Devon Energy on February 5, 2024 and sell it today you would lose (1,950) from holding Devon Energy or give up 2.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Devon Energy  vs.  Arca Continental SAB

Devon Energy

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Devon Energy are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Devon Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Arca Continental SAB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arca Continental SAB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Devon Energy and Arca Continental

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

The idea behind Devon Energy and Arca Continental SAB 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.