Correlation Between Cross Timbers and PermRock Royalty

Can any of the company-specific risk be diversified away by investing in both Cross Timbers and PermRock 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 PermRock 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 PermRock Royalty Trust, you can compare the effects of market volatilities on Cross Timbers and PermRock 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 PermRock Royalty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cross Timbers and PermRock Royalty.

Diversification Opportunities for Cross Timbers and PermRock Royalty

0.86

Correlation Coefficient

Cross Timbers  PermRock Royalty

Very poor diversification

The 3 months correlation between Cross and PermRock is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Cross Timbers Royalty and PermRock Royalty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PermRock 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 PermRock Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PermRock Royalty Trust has no effect on the direction of Cross Timbers i.e., Cross Timbers and PermRock Royalty go up and down completely randomly.

Pair Corralation between Cross Timbers and PermRock Royalty

Considering the 90-day investment horizon Cross Timbers is expected to generate 24.24 times less return on investment than PermRock Royalty. But when comparing it to its historical volatility, Cross Timbers Royalty is 1.13 times less risky than PermRock Royalty. It trades about 0.0 of its potential returns per unit of risk. PermRock Royalty Trust is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  390.00  in PermRock Royalty Trust on November 28, 2024 and sell it today you would earn a total of  48.00  from holding PermRock Royalty Trust or generate 12.31% return on investment over 90 days.

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

Cross Timbers Royalty  vs.  PermRock Royalty Trust

Cross Timbers Royalty

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cross Timbers Royalty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cross Timbers is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

PermRock Royalty Trust

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PermRock Royalty Trust are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, PermRock Royalty unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cross Timbers and PermRock Royalty

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

The idea behind Cross Timbers Royalty and PermRock 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.