It’s no secret that the energy sector has been hit hard by the collapse in oil prices since mid-2014. Despite a recent bounce-back in oil prices, shares of the United States Oil Fund ETF USO 1.22% remain more than 46 percent lower than they were priced this time last year.

Survival Of The Fittest

During any market downturn such as the one the energy sector is currently experiencing, poorly-run, inefficient and poorly-hedged companies are usually the first casualties.

While the Energy Select Sector SPDR XLE 0.36% has fallen more than 15 percent in the past year, many stocks in the energy sector are down 80 percent or more during that time because the market believes there is a good chance they will not survive the downturn.

Default Probabilities

Kamakura Corp uses their Kamakura Risk Information Services (KRIS) model to estimate the default probabilities of…

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