Correlation Between PHX Energy and Source Rock

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

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

Diversification Opportunities for PHX Energy and Source Rock

-0.02

Correlation Coefficient

PHX Energy  Source Rock

Good diversification

The 3 months correlation between PHX and Source is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding PHX Energy Services and Source Rock Royalties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Source Rock Royalties and PHX 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 PHX Energy Services are associated (or correlated) with Source Rock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Source Rock Royalties has no effect on the direction of PHX Energy i.e., PHX Energy and Source Rock go up and down completely randomly.

Pair Corralation between PHX Energy and Source Rock

Assuming the 90 days trading horizon PHX Energy Services is expected to under-perform the Source Rock. In addition to that, PHX Energy is 1.11 times more volatile than Source Rock Royalties. It trades about -0.12 of its total potential returns per unit of risk. Source Rock Royalties is currently generating about -0.01 per unit of volatility. If you would invest  87.00  in Source Rock Royalties on December 4, 2024 and sell it today you would lose (1.00) from holding Source Rock Royalties or give up 1.15% of portfolio value over 90 days.

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

PHX Energy Services  vs.  Source Rock Royalties

PHX Energy Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days PHX Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Source Rock Royalties

Risk-Adjusted Performance

Very Weak

Over the last 90 days Source Rock Royalties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Source Rock is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with PHX Energy and Source Rock

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

The idea behind PHX Energy Services and Source Rock Royalties 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.