Correlation Between APA and Permian Resources

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

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

Diversification Opportunities for APA and Permian Resources

0.9

Correlation Coefficient

APA  Permian Resources

Almost no diversification

The 3 months correlation between APA and Permian is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and Permian Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permian Resources 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 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 APA i.e., APA and Permian Resources go up and down completely randomly.

Pair Corralation between APA and Permian Resources

Considering the 90-day investment horizon APA Corporation is expected to under-perform the Permian Resources. In addition to that, APA is 1.06 times more volatile than Permian Resources. It trades about -0.01 of its total potential returns per unit of risk. Permian Resources is currently generating about 0.03 per unit of volatility. If you would invest  1,370  in Permian Resources on December 27, 2024 and sell it today you would earn a total of  41.00  from holding Permian Resources or generate 2.99% return on investment over 90 days.

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

APA Corp.  vs.  Permian Resources

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.

Permian Resources

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Permian Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Permian Resources is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with APA and Permian Resources

The main advantage of trading using opposite APA and Permian Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if APA 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 APA Corporation 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.