Correlation Between Diamondback Energy and Permianville Royalty

Can any of the company-specific risk be diversified away by investing in both Diamondback 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 Diamondback 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 Diamondback Energy and Permianville Royalty Trust, you can compare the effects of market volatilities on Diamondback 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 Diamondback Energy with a short position of Permianville Royalty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamondback Energy and Permianville Royalty.

Diversification Opportunities for Diamondback Energy and Permianville Royalty

0.75

Correlation Coefficient

Diamondback Energy  Permianville Royalty

Poor diversification

The 3 months correlation between Diamondback and Permianville is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Diamondback 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 Diamondback 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 Diamondback 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 Diamondback Energy i.e., Diamondback Energy and Permianville Royalty go up and down completely randomly.

Pair Corralation between Diamondback Energy and Permianville Royalty

Given the investment horizon of 90 days Diamondback Energy is expected to under-perform the Permianville Royalty. But the stock apears to be less risky and, when comparing its historical volatility, Diamondback Energy is 1.21 times less risky than Permianville Royalty. The stock trades about -0.45 of its potential returns per unit of risk. The Permianville Royalty Trust is currently generating about -0.33 of returns per unit of risk over similar time horizon. If you would invest  154.00  in Permianville Royalty Trust on September 25, 2024 and sell it today you would lose (18.00) from holding Permianville Royalty Trust or give up 11.69% of portfolio value over 90 days.

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

Diamondback Energy  vs.  Permianville Royalty Trust

Diamondback Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamondback Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Diamondback Energy and Permianville Royalty

The main advantage of trading using opposite Diamondback Energy and Permianville Royalty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamondback 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 Diamondback 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.