Correlation Between Murphy Oil and Permianville Royalty

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

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

Diversification Opportunities for Murphy Oil and Permianville Royalty

0.8

Correlation Coefficient

Murphy Oil  Permianville Royalty

Very poor diversification

The 3 months correlation between Murphy and Permianville is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Murphy Oil and Permianville Royalty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permianville Royalty and Murphy Oil 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 Murphy Oil 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 Murphy Oil i.e., Murphy Oil and Permianville Royalty go up and down completely randomly.

Pair Corralation between Murphy Oil and Permianville Royalty

Considering the 90-day investment horizon Murphy Oil is expected to generate 0.57 times more return on investment than Permianville Royalty. However, Murphy Oil is 1.75 times less risky than Permianville Royalty. It trades about -0.02 of its potential returns per unit of risk. Permianville Royalty Trust is currently generating about -0.02 per unit of risk. If you would invest  3,823  in Murphy Oil on September 24, 2024 and sell it today you would lose (989.00) from holding Murphy Oil or give up 25.87% of portfolio value over 90 days.

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

Murphy Oil  vs.  Permianville Royalty Trust

Murphy Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Murphy Oil has generated negative risk-adjusted returns adding no value to investors with long positions. Even with conflicting performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise 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 weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Murphy Oil and Permianville Royalty

The main advantage of trading using opposite Murphy Oil and Permianville Royalty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Murphy Oil 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 Murphy Oil 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.