Correlation Between Expand Energy and Permian Resources

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

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

Diversification Opportunities for Expand Energy and Permian Resources

0.68

Correlation Coefficient

Expand Energy  Permian Resources

Poor diversification

The 3 months correlation between Expand and Permian is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Expand Energy and Permian Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permian Resources and Expand 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 Expand Energy 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 Expand Energy i.e., Expand Energy and Permian Resources go up and down completely randomly.

Pair Corralation between Expand Energy and Permian Resources

Assuming the 90 days horizon Expand Energy is expected to generate 3.39 times less return on investment than Permian Resources. But when comparing it to its historical volatility, Expand Energy is 1.09 times less risky than Permian Resources. It trades about 0.02 of its potential returns per unit of risk. Permian Resources is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  869.00  in Permian Resources on September 20, 2024 and sell it today you would earn a total of  493.50  from holding Permian Resources or generate 56.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Expand Energy  vs.  Permian Resources

Expand Energy

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Expand Energy are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Expand Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Permian Resources

Risk-Adjusted Performance

0 of 100

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 Expand Energy and Permian Resources

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