Correlation Between East West and Kimbell Royalty

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

By analyzing existing cross correlation between East West Petroleum and Kimbell Royalty Partners, you can compare the effects of market volatilities on East West and Kimbell 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 East West with a short position of Kimbell Royalty. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and Kimbell Royalty.

Diversification Opportunities for East West and Kimbell Royalty

0.04

Correlation Coefficient

East West  Kimbell Royalty

Significant diversification

The 3 months correlation between East and Kimbell is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding East West Petroleum and Kimbell Royalty Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kimbell Royalty Partners and East West 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 East West Petroleum are associated (or correlated) with Kimbell Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kimbell Royalty Partners has no effect on the direction of East West i.e., East West and Kimbell Royalty go up and down completely randomly.

Pair Corralation between East West and Kimbell Royalty

Assuming the 90 days horizon East West Petroleum is expected to generate 35.21 times more return on investment than Kimbell Royalty. However, East West is 35.21 times more volatile than Kimbell Royalty Partners. It trades about 0.2 of its potential returns per unit of risk. Kimbell Royalty Partners is currently generating about 0.03 per unit of risk. If you would invest  7.00  in East West Petroleum on October 4, 2024 and sell it today you would lose (4.50) from holding East West Petroleum or give up 64.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.4%
Values	Daily Returns

East West Petroleum  vs.  Kimbell Royalty Partners

East West Petroleum

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in East West Petroleum are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, East West reported solid returns over the last few months and may actually be approaching a breakup point.

Kimbell Royalty Partners

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kimbell Royalty Partners are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Kimbell Royalty 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 East West and Kimbell Royalty

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

The idea behind East West Petroleum and Kimbell Royalty Partners 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.