Correlation Between Mexco Energy and PrimeEnergy

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

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

Diversification Opportunities for Mexco Energy and PrimeEnergy

0.36

Correlation Coefficient

Mexco Energy  PrimeEnergy

Weak diversification

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

Pair Corralation between Mexco Energy and PrimeEnergy

Considering the 90-day investment horizon Mexco Energy is expected to generate 5.63 times less return on investment than PrimeEnergy. But when comparing it to its historical volatility, Mexco Energy is 1.52 times less risky than PrimeEnergy. It trades about 0.0 of its potential returns per unit of risk. PrimeEnergy is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  19,800  in PrimeEnergy on December 2, 2024 and sell it today you would lose (210.00) from holding PrimeEnergy or give up 1.06% of portfolio value over 90 days.

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

Mexco Energy  vs.  PrimeEnergy

Mexco Energy

Risk-Adjusted Performance

Very Weak

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

PrimeEnergy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PrimeEnergy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, PrimeEnergy is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Mexco Energy and PrimeEnergy

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

The idea behind Mexco Energy and PrimeEnergy 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.