Correlation Between Arrow Exploration and Permian Resources

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

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

Diversification Opportunities for Arrow Exploration and Permian Resources

-0.49

Correlation Coefficient

Arrow Exploration  Permian Resources

Very good diversification

The 3 months correlation between Arrow and Permian is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Exploration Corp and Permian Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permian Resources and Arrow Exploration 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 Arrow Exploration Corp are associated (or correlated) with Permian Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permian Resources has no effect on the direction of Arrow Exploration i.e., Arrow Exploration and Permian Resources go up and down completely randomly.

Pair Corralation between Arrow Exploration and Permian Resources

Assuming the 90 days horizon Arrow Exploration Corp is expected to under-perform the Permian Resources. In addition to that, Arrow Exploration is 4.47 times more volatile than Permian Resources. It trades about -0.01 of its total potential returns per unit of risk. Permian Resources is currently generating about 0.09 per unit of volatility. If you would invest  1,336  in Permian Resources on September 13, 2024 and sell it today you would earn a total of  141.00  from holding Permian Resources or generate 10.55% return on investment over 90 days.

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

Arrow Exploration Corp  vs.  Permian Resources

Arrow Exploration Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arrow Exploration Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Arrow Exploration is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Permian Resources

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Permian Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Permian Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Arrow Exploration and Permian Resources

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

The idea behind Arrow Exploration Corp and Permian Resources 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 CEOs Directory module to screen CEOs from public companies around the world.