Correlation Between Plains All and Permian Basin

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

By analyzing existing cross correlation between Plains All American and Permian Basin Royalty, you can compare the effects of market volatilities on Plains All and Permian Basin 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 Plains All with a short position of Permian Basin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Plains All and Permian Basin.

Diversification Opportunities for Plains All and Permian Basin

-0.34

Correlation Coefficient

Plains All  Permian Basin

Very good diversification

The 3 months correlation between Plains and Permian is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Plains All American and Permian Basin Royalty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permian Basin Royalty and Plains All 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 Plains All American are associated (or correlated) with Permian Basin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permian Basin Royalty has no effect on the direction of Plains All i.e., Plains All and Permian Basin go up and down completely randomly.

Pair Corralation between Plains All and Permian Basin

Considering the 90-day investment horizon Plains All American is expected to generate 0.72 times more return on investment than Permian Basin. However, Plains All American is 1.38 times less risky than Permian Basin. It trades about 0.1 of its potential returns per unit of risk. Permian Basin Royalty is currently generating about -0.14 per unit of risk. If you would invest  1,833  in Plains All American on November 28, 2024 and sell it today you would earn a total of  178.00  from holding Plains All American or generate 9.71% return on investment over 90 days.

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

Plains All American  vs.  Permian Basin Royalty

Plains All American

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Plains All American are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Plains All may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Permian Basin Royalty

Risk-Adjusted Performance

Very Weak

Over the last 90 days Permian Basin Royalty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental drivers remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Plains All and Permian Basin

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

The idea behind Plains All American and Permian Basin Royalty 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.