Correlation Between Permian Basin and BP Prudhoe

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

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

Diversification Opportunities for Permian Basin and BP Prudhoe

-0.01

Correlation Coefficient

Permian Basin  BP Prudhoe

Good diversification

The 3 months correlation between Permian and BPT is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Permian Basin Royalty and BP Prudhoe Bay in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP Prudhoe Bay and Permian Basin 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 Permian Basin Royalty are associated (or correlated) with BP Prudhoe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP Prudhoe Bay has no effect on the direction of Permian Basin i.e., Permian Basin and BP Prudhoe go up and down completely randomly.

Pair Corralation between Permian Basin and BP Prudhoe

Considering the 90-day investment horizon Permian Basin Royalty is expected to under-perform the BP Prudhoe. But the stock apears to be less risky and, when comparing its historical volatility, Permian Basin Royalty is 3.45 times less risky than BP Prudhoe. The stock trades about -0.06 of its potential returns per unit of risk. The BP Prudhoe Bay is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  56.00  in BP Prudhoe Bay on December 28, 2024 and sell it today you would earn a total of  1.00  from holding BP Prudhoe Bay or generate 1.79% return on investment over 90 days.

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

Permian Basin Royalty  vs.  BP Prudhoe Bay

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 latest fragile performance, the Stock's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

BP Prudhoe Bay

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BP Prudhoe Bay are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, BP Prudhoe unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Permian Basin and BP Prudhoe

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

The idea behind Permian Basin Royalty and BP Prudhoe Bay 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.