Correlation Between Empire Petroleum and Permian Resources

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

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

Diversification Opportunities for Empire Petroleum and Permian Resources

0.01

Correlation Coefficient

Empire Petroleum  Permian Resources

Significant diversification

The 3 months correlation between Empire and Permian is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Empire Petroleum Corp and Permian Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permian Resources and Empire Petroleum 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 Empire Petroleum 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 Empire Petroleum i.e., Empire Petroleum and Permian Resources go up and down completely randomly.

Pair Corralation between Empire Petroleum and Permian Resources

Allowing for the 90-day total investment horizon Empire Petroleum Corp is expected to under-perform the Permian Resources. In addition to that, Empire Petroleum is 1.66 times more volatile than Permian Resources. It trades about -0.04 of its total potential returns per unit of risk. Permian Resources is currently generating about 0.01 per unit of volatility. If you would invest  1,398  in Permian Resources on December 28, 2024 and sell it today you would lose (3.00) from holding Permian Resources or give up 0.21% of portfolio value over 90 days.

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

Empire Petroleum Corp  vs.  Permian Resources

Empire Petroleum Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Empire Petroleum Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Permian Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Permian Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Permian Resources is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Empire Petroleum and Permian Resources

The main advantage of trading using opposite Empire Petroleum and Permian Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Empire Petroleum 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 Empire Petroleum 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.

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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.