Correlation Between Kimbell Royalty and Devon Energy

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

Diversification Opportunities for Kimbell Royalty and Devon Energy

0.36

Correlation Coefficient

Kimbell Royalty  Devon Energy

Weak diversification

The 3 months correlation between Kimbell and Devon is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Kimbell Royalty Partners and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon Energy 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 Devon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Devon Energy has no effect on the direction of Kimbell Royalty i.e., Kimbell Royalty and Devon Energy go up and down completely randomly.

Pair Corralation between Kimbell Royalty and Devon Energy

Considering the 90-day investment horizon Kimbell Royalty Partners is expected to under-perform the Devon Energy. But the stock apears to be less risky and, when comparing its historical volatility, Kimbell Royalty Partners is 1.72 times less risky than Devon Energy. The stock trades about -0.07 of its potential returns per unit of risk. The Devon Energy is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,737  in Devon Energy on December 1, 2024 and sell it today you would lose (115.00) from holding Devon Energy or give up 3.08% of portfolio value over 90 days.

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

Kimbell Royalty Partners  vs.  Devon Energy

Kimbell Royalty Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kimbell Royalty Partners has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Devon Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Devon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Devon Energy is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Kimbell Royalty and Devon Energy

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

The idea behind Kimbell Royalty Partners and Devon Energy 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.