Correlation Between PrimeEnergy and Hugoton Royalty

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

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

Diversification Opportunities for PrimeEnergy and Hugoton Royalty

-0.84

Correlation Coefficient

PrimeEnergy  Hugoton Royalty

Pay attention - limited upside

The 3 months correlation between PrimeEnergy and Hugoton is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding PrimeEnergy and Hugoton Royalty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hugoton Royalty Trust and PrimeEnergy 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 PrimeEnergy are associated (or correlated) with Hugoton Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hugoton Royalty Trust has no effect on the direction of PrimeEnergy i.e., PrimeEnergy and Hugoton Royalty go up and down completely randomly.

Pair Corralation between PrimeEnergy and Hugoton Royalty

Given the investment horizon of 90 days PrimeEnergy is expected to generate 0.68 times more return on investment than Hugoton Royalty. However, PrimeEnergy is 1.47 times less risky than Hugoton Royalty. It trades about 0.09 of its potential returns per unit of risk. Hugoton Royalty Trust is currently generating about -0.14 per unit of risk. If you would invest  8,160  in PrimeEnergy on October 5, 2024 and sell it today you would earn a total of  12,430  from holding PrimeEnergy or generate 152.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	20.04%
Values	Daily Returns

PrimeEnergy  vs.  Hugoton Royalty Trust

PrimeEnergy

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PrimeEnergy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, PrimeEnergy reported solid returns over the last few months and may actually be approaching a breakup point.

Hugoton Royalty Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hugoton Royalty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Hugoton Royalty is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with PrimeEnergy and Hugoton Royalty

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

The idea behind PrimeEnergy and Hugoton 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.

Check out your portfolio center.

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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.