Correlation Between Kimbell Royalty and PermRock Royalty

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

Diversification Opportunities for Kimbell Royalty and PermRock Royalty

-0.15

Correlation Coefficient

Kimbell Royalty  PermRock Royalty

Good diversification

The 3 months correlation between Kimbell and PermRock is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Kimbell Royalty Partners and PermRock Royalty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PermRock Royalty Trust 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 PermRock Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PermRock Royalty Trust has no effect on the direction of Kimbell Royalty i.e., Kimbell Royalty and PermRock Royalty go up and down completely randomly.

Pair Corralation between Kimbell Royalty and PermRock Royalty

Considering the 90-day investment horizon Kimbell Royalty Partners is expected to under-perform the PermRock Royalty. But the stock apears to be less risky and, when comparing its historical volatility, Kimbell Royalty Partners is 1.26 times less risky than PermRock Royalty. The stock trades about -0.08 of its potential returns per unit of risk. The PermRock Royalty Trust is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  350.00  in PermRock Royalty Trust on December 29, 2024 and sell it today you would earn a total of  81.00  from holding PermRock Royalty Trust or generate 23.14% return on investment over 90 days.

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

Kimbell Royalty Partners  vs.  PermRock Royalty Trust

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 latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

PermRock Royalty Trust

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PermRock Royalty Trust are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, PermRock Royalty unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kimbell Royalty and PermRock Royalty

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

The idea behind Kimbell Royalty Partners and PermRock 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.