Correlation Between APA and Black Stone

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

By analyzing existing cross correlation between APA Corporation and Black Stone Minerals, you can compare the effects of market volatilities on APA and Black Stone 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 APA with a short position of Black Stone. Check out your portfolio center. Please also check ongoing floating volatility patterns of APA and Black Stone.

Diversification Opportunities for APA and Black Stone

0.47

Correlation Coefficient

APA  Black Stone

Very weak diversification

The 3 months correlation between APA and Black is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and Black Stone Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Black Stone Minerals and APA 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 APA Corporation are associated (or correlated) with Black Stone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Black Stone Minerals has no effect on the direction of APA i.e., APA and Black Stone go up and down completely randomly.

Pair Corralation between APA and Black Stone

Considering the 90-day investment horizon APA Corporation is expected to under-perform the Black Stone. In addition to that, APA is 1.92 times more volatile than Black Stone Minerals. It trades about -0.03 of its total potential returns per unit of risk. Black Stone Minerals is currently generating about -0.01 per unit of volatility. If you would invest  1,518  in Black Stone Minerals on December 1, 2024 and sell it today you would lose (22.00) from holding Black Stone Minerals or give up 1.45% of portfolio value over 90 days.

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

APA Corp.  vs.  Black Stone Minerals

APA Corporation

Risk-Adjusted Performance

Very Weak

Over the last 90 days APA Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, APA is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Black Stone Minerals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Black Stone Minerals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Black Stone is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with APA and Black Stone

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

The idea behind APA Corporation and Black Stone Minerals 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.