Correlation Between Permian Resources and Energy Revenue

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

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

Diversification Opportunities for Permian Resources and Energy Revenue

0.09

Correlation Coefficient

Permian Resources  Energy Revenue

Significant diversification

The 3 months correlation between Permian and Energy is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Permian Resources and Energy Revenue Amer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Revenue Amer 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 Energy Revenue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Revenue Amer has no effect on the direction of Permian Resources i.e., Permian Resources and Energy Revenue go up and down completely randomly.

Pair Corralation between Permian Resources and Energy Revenue

Allowing for the 90-day total investment horizon Permian Resources is expected to generate 0.25 times more return on investment than Energy Revenue. However, Permian Resources is 3.98 times less risky than Energy Revenue. It trades about -0.07 of its potential returns per unit of risk. Energy Revenue Amer is currently generating about -0.36 per unit of risk. If you would invest  1,518  in Permian Resources on September 15, 2024 and sell it today you would lose (50.00) from holding Permian Resources or give up 3.29% of portfolio value over 90 days.

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

Permian Resources  vs.  Energy Revenue Amer

Permian Resources

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Permian Resources are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Permian Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Energy Revenue Amer

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Revenue Amer are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Energy Revenue displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Permian Resources and Energy Revenue

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

The idea behind Permian Resources and Energy Revenue Amer 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.