Correlation Between Black Stone and Mesa Royalty

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

By analyzing existing cross correlation between Black Stone Minerals and Mesa Royalty Trust, you can compare the effects of market volatilities on Black Stone and Mesa 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 Black Stone with a short position of Mesa Royalty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Black Stone and Mesa Royalty.

Diversification Opportunities for Black Stone and Mesa Royalty

0.51

Correlation Coefficient

Black Stone  Mesa Royalty

Very weak diversification

The 3 months correlation between Black and Mesa is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Black Stone Minerals and Mesa Royalty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mesa Royalty Trust and Black Stone 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 Black Stone Minerals are associated (or correlated) with Mesa Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mesa Royalty Trust has no effect on the direction of Black Stone i.e., Black Stone and Mesa Royalty go up and down completely randomly.

Pair Corralation between Black Stone and Mesa Royalty

Considering the 90-day investment horizon Black Stone is expected to generate 1.94 times less return on investment than Mesa Royalty. But when comparing it to its historical volatility, Black Stone Minerals is 3.21 times less risky than Mesa Royalty. It trades about 0.14 of its potential returns per unit of risk. Mesa Royalty Trust is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  635.00  in Mesa Royalty Trust on September 3, 2024 and sell it today you would earn a total of  95.00  from holding Mesa Royalty Trust or generate 14.96% return on investment over 90 days.

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

Black Stone Minerals  vs.  Mesa Royalty Trust

Black Stone Minerals

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Black Stone Minerals are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Black Stone may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Mesa Royalty Trust

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mesa Royalty Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Mesa Royalty reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Black Stone and Mesa Royalty

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

The idea behind Black Stone Minerals and Mesa 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.