Correlation Between Kimbell Royalty and Permianville Royalty

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

Diversification Opportunities for Kimbell Royalty and Permianville Royalty

0.07

Correlation Coefficient

Kimbell Royalty  Permianville Royalty

Significant diversification

The 3 months correlation between Kimbell and Permianville is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Kimbell Royalty Partners and Permianville Royalty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permianville Royalty 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 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 Kimbell Royalty i.e., Kimbell Royalty and Permianville Royalty go up and down completely randomly.

Pair Corralation between Kimbell Royalty and Permianville Royalty

Considering the 90-day investment horizon Kimbell Royalty Partners is expected to generate 0.75 times more return on investment than Permianville Royalty. However, Kimbell Royalty Partners is 1.34 times less risky than Permianville Royalty. It trades about -0.07 of its potential returns per unit of risk. Permianville Royalty Trust is currently generating about -0.14 per unit of risk. If you would invest  1,576  in Kimbell Royalty Partners on October 12, 2024 and sell it today you would lose (35.00) from holding Kimbell Royalty Partners or give up 2.22% of portfolio value over 90 days.

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

Kimbell Royalty Partners  vs.  Permianville Royalty Trust

Kimbell Royalty Partners

Risk-Adjusted Performance

0 of 100

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.

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 latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Kimbell Royalty and Permianville Royalty

The main advantage of trading using opposite Kimbell Royalty and Permianville Royalty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kimbell Royalty 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 Kimbell Royalty Partners 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.