Correlation Between Permian Resources and NACCO Industries

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

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

Diversification Opportunities for Permian Resources and NACCO Industries

-0.91

Correlation Coefficient

Permian Resources  NACCO Industries

Pay attention - limited upside

The 3 months correlation between Permian and NACCO is -0.91. Overlapping area represents the amount of risk that can be diversified away by holding Permian Resources and NACCO Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NACCO Industries and Permian Resources 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 Permian Resources are associated (or correlated) with NACCO Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NACCO Industries has no effect on the direction of Permian Resources i.e., Permian Resources and NACCO Industries go up and down completely randomly.

Pair Corralation between Permian Resources and NACCO Industries

Allowing for the 90-day total investment horizon Permian Resources is expected to under-perform the NACCO Industries. But the stock apears to be less risky and, when comparing its historical volatility, Permian Resources is 2.66 times less risky than NACCO Industries. The stock trades about -0.18 of its potential returns per unit of risk. The NACCO Industries is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,899  in NACCO Industries on February 5, 2024 and sell it today you would earn a total of  423.00  from holding NACCO Industries or generate 14.59% return on investment over 90 days.

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

Permian Resources  vs.  NACCO Industries

Permian Resources

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Permian Resources are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Permian Resources reported solid returns over the last few months and may actually be approaching a breakup point.

NACCO Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NACCO Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental 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 Permian Resources and NACCO Industries

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

The idea behind Permian Resources and NACCO Industries 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.