Correlation Between Adams Resources and PrimeEnergy

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

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

Diversification Opportunities for Adams Resources and PrimeEnergy

0.36

Correlation Coefficient

Adams Resources  PrimeEnergy

Weak diversification

The 3 months correlation between Adams and PrimeEnergy is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Adams Resources Energy and PrimeEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PrimeEnergy and Adams 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 Adams Resources Energy are associated (or correlated) with PrimeEnergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PrimeEnergy has no effect on the direction of Adams Resources i.e., Adams Resources and PrimeEnergy go up and down completely randomly.

Pair Corralation between Adams Resources and PrimeEnergy

Allowing for the 90-day total investment horizon Adams Resources is expected to generate 1.92 times less return on investment than PrimeEnergy. But when comparing it to its historical volatility, Adams Resources Energy is 11.83 times less risky than PrimeEnergy. It trades about 0.14 of its potential returns per unit of risk. PrimeEnergy is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  19,340  in PrimeEnergy on November 19, 2024 and sell it today you would earn a total of  78.00  from holding PrimeEnergy or generate 0.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	85.25%
Values	Daily Returns

Adams Resources Energy  vs.  PrimeEnergy

Adams Resources Energy

Risk-Adjusted Performance

Good

Over the last 90 days Adams Resources Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Adams Resources is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

PrimeEnergy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PrimeEnergy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, PrimeEnergy may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Adams Resources and PrimeEnergy

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

The idea behind Adams Resources Energy and PrimeEnergy 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.