Correlation Between APA and Sitio Royalties

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

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

Diversification Opportunities for APA and Sitio Royalties

-0.46

Correlation Coefficient

APA  Sitio Royalties

Very good diversification

The 3 months correlation between APA and Sitio is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and Sitio Royalties Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sitio Royalties Corp 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 Sitio Royalties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sitio Royalties Corp has no effect on the direction of APA i.e., APA and Sitio Royalties go up and down completely randomly.

Pair Corralation between APA and Sitio Royalties

Considering the 90-day investment horizon APA Corporation is expected to under-perform the Sitio Royalties. In addition to that, APA is 1.43 times more volatile than Sitio Royalties Corp. It trades about -0.05 of its total potential returns per unit of risk. Sitio Royalties Corp is currently generating about 0.17 per unit of volatility. If you would invest  2,203  in Sitio Royalties Corp on September 1, 2024 and sell it today you would earn a total of  167.00  from holding Sitio Royalties Corp or generate 7.58% return on investment over 90 days.

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

APA Corp.  vs.  Sitio Royalties Corp

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 unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Sitio Royalties Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sitio Royalties Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Sitio Royalties reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with APA and Sitio Royalties

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

The idea behind APA Corporation and Sitio Royalties Corp 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.

Check out your portfolio center.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.