Correlation Between Barnwell Industries and Riley Exploration

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

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

Diversification Opportunities for Barnwell Industries and Riley Exploration

0.51

Correlation Coefficient

Barnwell Industries  Riley Exploration

Very weak diversification

The 3 months correlation between Barnwell and Riley is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Barnwell Industries 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 Barnwell Industries 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 Barnwell Industries 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 Barnwell Industries i.e., Barnwell Industries and Riley Exploration go up and down completely randomly.

Pair Corralation between Barnwell Industries and Riley Exploration

Considering the 90-day investment horizon Barnwell Industries is expected to generate 1.54 times more return on investment than Riley Exploration. However, Barnwell Industries is 1.54 times more volatile than Riley Exploration Permian. It trades about 0.07 of its potential returns per unit of risk. Riley Exploration Permian is currently generating about -0.04 per unit of risk. If you would invest  143.00  in Barnwell Industries on December 28, 2024 and sell it today you would earn a total of  19.00  from holding Barnwell Industries or generate 13.29% return on investment over 90 days.

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

Barnwell Industries  vs.  Riley Exploration Permian

Barnwell Industries

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Barnwell Industries are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Barnwell Industries displayed solid returns over the last few months and may actually be approaching a breakup point.

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 latest abnormal 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.

Pair Trading with Barnwell Industries and Riley Exploration

The main advantage of trading using opposite Barnwell Industries and Riley Exploration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Barnwell Industries 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 Barnwell Industries 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.