Correlation Between Cross Timbers and Mesa Royalty

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

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

Diversification Opportunities for Cross Timbers and Mesa Royalty

0.25

Correlation Coefficient

Cross Timbers  Mesa Royalty

Modest diversification

The 3 months correlation between Cross and Mesa is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Cross Timbers Royalty 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 Cross Timbers 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 Cross Timbers Royalty 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 Cross Timbers i.e., Cross Timbers and Mesa Royalty go up and down completely randomly.

Pair Corralation between Cross Timbers and Mesa Royalty

Considering the 90-day investment horizon Cross Timbers Royalty is expected to generate 0.88 times more return on investment than Mesa Royalty. However, Cross Timbers Royalty is 1.13 times less risky than Mesa Royalty. It trades about 0.2 of its potential returns per unit of risk. Mesa Royalty Trust is currently generating about 0.05 per unit of risk. If you would invest  942.00  in Cross Timbers Royalty on December 27, 2024 and sell it today you would earn a total of  233.00  from holding Cross Timbers Royalty or generate 24.73% return on investment over 90 days.

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

Cross Timbers Royalty  vs.  Mesa Royalty Trust

Cross Timbers Royalty

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cross Timbers Royalty are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Cross Timbers unveiled solid returns over the last few months and may actually be approaching a breakup point.

Mesa Royalty Trust

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mesa Royalty Trust are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Mesa Royalty may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Cross Timbers and Mesa Royalty

The main advantage of trading using opposite Cross Timbers and Mesa Royalty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cross Timbers 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 Cross Timbers Royalty 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.

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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.