Correlation Between Cross Timbers and Permianville Royalty

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

Diversification Opportunities for Cross Timbers and Permianville Royalty

0.62

Correlation Coefficient

Cross Timbers  Permianville Royalty

Poor diversification

The 3 months correlation between Cross and Permianville is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Cross Timbers Royalty and Permianville Royalty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permianville Royalty 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 Permianville Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permianville Royalty has no effect on the direction of Cross Timbers i.e., Cross Timbers and Permianville Royalty go up and down completely randomly.

Pair Corralation between Cross Timbers and Permianville Royalty

Considering the 90-day investment horizon Cross Timbers Royalty is expected to generate 1.06 times more return on investment than Permianville Royalty. However, Cross Timbers is 1.06 times more volatile than Permianville Royalty Trust. It trades about 0.22 of its potential returns per unit of risk. Permianville Royalty Trust is currently generating about 0.13 per unit of risk. If you would invest  954.00  in Cross Timbers Royalty on December 29, 2024 and sell it today you would earn a total of  279.00  from holding Cross Timbers Royalty or generate 29.25% return on investment over 90 days.

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

Cross Timbers Royalty  vs.  Permianville Royalty Trust

Cross Timbers Royalty

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cross Timbers Royalty are ranked lower than 17 (%) 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.

Permianville Royalty

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Permianville Royalty Trust are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Permianville Royalty disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cross Timbers and Permianville Royalty

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

The idea behind Cross Timbers Royalty and Permianville 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.