Correlation Between Coterra Energy and Vital Energy

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

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

Diversification Opportunities for Coterra Energy and Vital Energy

0.45

Correlation Coefficient

Coterra Energy  Vital Energy

Very weak diversification

The 3 months correlation between Coterra and Vital is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Coterra Energy and Vital Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vital Energy and Coterra 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 Coterra Energy are associated (or correlated) with Vital Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vital Energy has no effect on the direction of Coterra Energy i.e., Coterra Energy and Vital Energy go up and down completely randomly.

Pair Corralation between Coterra Energy and Vital Energy

Given the investment horizon of 90 days Coterra Energy is expected to generate 1.43 times less return on investment than Vital Energy. But when comparing it to its historical volatility, Coterra Energy is 1.34 times less risky than Vital Energy. It trades about 0.32 of its potential returns per unit of risk. Vital Energy is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  2,671  in Vital Energy on August 28, 2024 and sell it today you would earn a total of  567.00  from holding Vital Energy or generate 21.23% return on investment over 90 days.

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

Coterra Energy  vs.  Vital Energy

Coterra Energy

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Coterra Energy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Coterra Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Vital Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vital Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's essential indicators 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 Coterra Energy and Vital Energy

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

The idea behind Coterra Energy and Vital 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.