Correlation Between PrimeEnergy and Ring Energy

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

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

Diversification Opportunities for PrimeEnergy and Ring Energy

-0.6

Correlation Coefficient

PrimeEnergy  Ring Energy

Excellent diversification

The 3 months correlation between PrimeEnergy and Ring is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding PrimeEnergy and Ring Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ring Energy 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 Ring Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ring Energy has no effect on the direction of PrimeEnergy i.e., PrimeEnergy and Ring Energy go up and down completely randomly.

Pair Corralation between PrimeEnergy and Ring Energy

Given the investment horizon of 90 days PrimeEnergy is expected to generate 1.23 times more return on investment than Ring Energy. However, PrimeEnergy is 1.23 times more volatile than Ring Energy. It trades about 0.17 of its potential returns per unit of risk. Ring Energy is currently generating about -0.08 per unit of risk. If you would invest  13,370  in PrimeEnergy on September 13, 2024 and sell it today you would earn a total of  5,890  from holding PrimeEnergy or generate 44.05% return on investment over 90 days.

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

PrimeEnergy  vs.  Ring Energy

PrimeEnergy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PrimeEnergy are ranked lower than 13 (%) 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.

Ring Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ring Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with PrimeEnergy and Ring Energy

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

The idea behind PrimeEnergy and Ring Energy 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.