Correlation Between Gear Energy and PrairieSky Royalty

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

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

Diversification Opportunities for Gear Energy and PrairieSky Royalty

-0.69

Correlation Coefficient

Gear Energy  PrairieSky Royalty

Excellent diversification

The 3 months correlation between Gear and PrairieSky is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Gear Energy and PrairieSky Royalty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PrairieSky Royalty and Gear 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 Gear Energy are associated (or correlated) with PrairieSky Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PrairieSky Royalty has no effect on the direction of Gear Energy i.e., Gear Energy and PrairieSky Royalty go up and down completely randomly.

Pair Corralation between Gear Energy and PrairieSky Royalty

Assuming the 90 days horizon Gear Energy is expected to under-perform the PrairieSky Royalty. In addition to that, Gear Energy is 2.09 times more volatile than PrairieSky Royalty. It trades about -0.07 of its total potential returns per unit of risk. PrairieSky Royalty is currently generating about -0.06 per unit of volatility. If you would invest  1,925  in PrairieSky Royalty on December 30, 2024 and sell it today you would lose (97.00) from holding PrairieSky Royalty or give up 5.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	45.16%
Values	Daily Returns

Gear Energy  vs.  PrairieSky Royalty

Gear Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gear Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

PrairieSky Royalty

Risk-Adjusted Performance

Very Weak

Over the last 90 days PrairieSky Royalty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking signals, PrairieSky Royalty is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Gear Energy and PrairieSky Royalty

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

The idea behind Gear Energy and PrairieSky Royalty 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.