Correlation Between APA and Permianville Royalty

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

By analyzing existing cross correlation between APA Corporation and Permianville Royalty Trust, you can compare the effects of market volatilities on APA and Permianville Royalty 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 Permianville Royalty. Check out your portfolio center. Please also check ongoing floating volatility patterns of APA and Permianville Royalty.

Diversification Opportunities for APA and Permianville Royalty

0.57

Correlation Coefficient

APA  Permianville Royalty

Very weak diversification

The 3 months correlation between APA and Permianville is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and Permianville Royalty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permianville Royalty 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 Permianville Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permianville Royalty has no effect on the direction of APA i.e., APA and Permianville Royalty go up and down completely randomly.

Pair Corralation between APA and Permianville Royalty

Considering the 90-day investment horizon APA Corporation is expected to generate 1.07 times more return on investment than Permianville Royalty. However, APA is 1.07 times more volatile than Permianville Royalty Trust. It trades about -0.06 of its potential returns per unit of risk. Permianville Royalty Trust is currently generating about -0.31 per unit of risk. If you would invest  2,252  in APA Corporation on September 27, 2024 and sell it today you would lose (66.50) from holding APA Corporation or give up 2.95% 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.  Permianville Royalty Trust

APA Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days APA Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Permianville Royalty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Permianville Royalty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with APA and Permianville Royalty

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

The idea behind APA Corporation and Permianville Royalty Trust 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.