Correlation Between Vital Energy and Permian Resources

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

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

Diversification Opportunities for Vital Energy and Permian Resources

0.82

Correlation Coefficient

Vital Energy  Permian Resources

Very poor diversification

The 3 months correlation between Vital and Permian is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Vital Energy and Permian Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permian Resources and Vital 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 Vital Energy are associated (or correlated) with Permian Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permian Resources has no effect on the direction of Vital Energy i.e., Vital Energy and Permian Resources go up and down completely randomly.

Pair Corralation between Vital Energy and Permian Resources

Given the investment horizon of 90 days Vital Energy is expected to under-perform the Permian Resources. In addition to that, Vital Energy is 1.34 times more volatile than Permian Resources. It trades about -0.14 of its total potential returns per unit of risk. Permian Resources is currently generating about -0.11 per unit of volatility. If you would invest  1,696  in Permian Resources on February 22, 2024 and sell it today you would lose (77.00) from holding Permian Resources or give up 4.54% of portfolio value over 90 days.

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

Vital Energy  vs.  Permian Resources

Vital Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vital Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, Vital Energy may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Permian Resources

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Permian Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Permian Resources may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Vital Energy and Permian Resources

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

The idea behind Vital Energy and Permian Resources 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..