Correlation Between APA and Riley Exploration

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

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

Diversification Opportunities for APA and Riley Exploration

0.93

Correlation Coefficient

APA  Riley Exploration

Almost no diversification

The 3 months correlation between APA and Riley is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and Riley Exploration Permian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Riley Exploration Permian 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 Riley Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Riley Exploration Permian has no effect on the direction of APA i.e., APA and Riley Exploration go up and down completely randomly.

Pair Corralation between APA and Riley Exploration

Considering the 90-day investment horizon APA Corporation is expected to under-perform the Riley Exploration. But the stock apears to be less risky and, when comparing its historical volatility, APA Corporation is 1.05 times less risky than Riley Exploration. The stock trades about 0.0 of its potential returns per unit of risk. The Riley Exploration Permian is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  3,084  in Riley Exploration Permian on December 26, 2024 and sell it today you would lose (74.00) from holding Riley Exploration Permian or give up 2.4% of portfolio value over 90 days.

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

APA Corp.  vs.  Riley Exploration Permian

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.

Riley Exploration Permian

Risk-Adjusted Performance

Very Weak

Over the last 90 days Riley Exploration Permian has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Riley Exploration is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with APA and Riley Exploration

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

The idea behind APA Corporation and Riley Exploration Permian 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.