Correlation Between Devon Energy and Permianville Royalty

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

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

Diversification Opportunities for Devon Energy and Permianville Royalty

0.85

Correlation Coefficient

Devon Energy  Permianville Royalty

Very poor diversification

The 3 months correlation between Devon and Permianville is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Devon Energy and Permianville Royalty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permianville Royalty and Devon Energy 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 Devon Energy 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 Devon Energy i.e., Devon Energy and Permianville Royalty go up and down completely randomly.

Pair Corralation between Devon Energy and Permianville Royalty

Considering the 90-day investment horizon Devon Energy is expected to under-perform the Permianville Royalty. But the stock apears to be less risky and, when comparing its historical volatility, Devon Energy is 1.79 times less risky than Permianville Royalty. The stock trades about -0.04 of its potential returns per unit of risk. The Permianville Royalty Trust is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  247.00  in Permianville Royalty Trust on October 13, 2024 and sell it today you would lose (99.00) from holding Permianville Royalty Trust or give up 40.08% of portfolio value over 90 days.

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

Devon Energy  vs.  Permianville Royalty Trust

Devon Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Devon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Permianville Royalty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Permianville Royalty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Permianville Royalty is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Devon Energy and Permianville Royalty

The main advantage of trading using opposite Devon Energy and Permianville Royalty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Devon Energy 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 Devon Energy 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.