Correlation Between SandRidge Energy and Hess

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

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

Diversification Opportunities for SandRidge Energy and Hess

0.84

Correlation Coefficient

SandRidge Energy  Hess

Very poor diversification

The 3 months correlation between SandRidge and Hess is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding SandRidge Energy and Hess Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hess and SandRidge 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 SandRidge Energy are associated (or correlated) with Hess. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hess has no effect on the direction of SandRidge Energy i.e., SandRidge Energy and Hess go up and down completely randomly.

Pair Corralation between SandRidge Energy and Hess

Allowing for the 90-day total investment horizon SandRidge Energy is expected to generate 2.28 times less return on investment than Hess. In addition to that, SandRidge Energy is 1.31 times more volatile than Hess Corporation. It trades about 0.02 of its total potential returns per unit of risk. Hess Corporation is currently generating about 0.05 per unit of volatility. If you would invest  10,709  in Hess Corporation on January 31, 2024 and sell it today you would earn a total of  5,604  from holding Hess Corporation or generate 52.33% return on investment over 90 days.

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

SandRidge Energy  vs.  Hess Corp.

SandRidge Energy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SandRidge Energy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, SandRidge Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Hess

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hess Corporation are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Hess unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SandRidge Energy and Hess

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

The idea behind SandRidge Energy and Hess Corporation 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.