Correlation Between Kimbell Royalty and California Resources

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

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

Diversification Opportunities for Kimbell Royalty and California Resources

0.62

Correlation Coefficient

Kimbell Royalty  California Resources

Poor diversification

The 3 months correlation between Kimbell and California is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Kimbell Royalty Partners and California Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Resources Corp and Kimbell Royalty 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 Kimbell Royalty Partners are associated (or correlated) with California Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Resources Corp has no effect on the direction of Kimbell Royalty i.e., Kimbell Royalty and California Resources go up and down completely randomly.

Pair Corralation between Kimbell Royalty and California Resources

Considering the 90-day investment horizon Kimbell Royalty is expected to generate 1.22 times less return on investment than California Resources. But when comparing it to its historical volatility, Kimbell Royalty Partners is 1.52 times less risky than California Resources. It trades about 0.03 of its potential returns per unit of risk. California Resources Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4,335  in California Resources Corp on October 4, 2024 and sell it today you would earn a total of  873.00  from holding California Resources Corp or generate 20.14% return on investment over 90 days.

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

Kimbell Royalty Partners  vs.  California Resources Corp

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.

California Resources Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days California Resources Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, California Resources is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Kimbell Royalty and California Resources

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

The idea behind Kimbell Royalty Partners and California Resources Corp 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.