Correlation Between Permian Resources and Coterra Energy

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

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

Diversification Opportunities for Permian Resources and Coterra Energy

0.5

Correlation Coefficient

Permian Resources  Coterra Energy

Very weak diversification

The 3 months correlation between Permian and Coterra is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Permian Resources and Coterra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coterra Energy and Permian Resources 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 Resources are associated (or correlated) with Coterra Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coterra Energy has no effect on the direction of Permian Resources i.e., Permian Resources and Coterra Energy go up and down completely randomly.

Pair Corralation between Permian Resources and Coterra Energy

Allowing for the 90-day total investment horizon Permian Resources is expected to generate 9.27 times less return on investment than Coterra Energy. In addition to that, Permian Resources is 1.31 times more volatile than Coterra Energy. It trades about 0.01 of its total potential returns per unit of risk. Coterra Energy is currently generating about 0.12 per unit of volatility. If you would invest  2,531  in Coterra Energy on December 29, 2024 and sell it today you would earn a total of  332.00  from holding Coterra Energy or generate 13.12% return on investment over 90 days.

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

Permian Resources  vs.  Coterra Energy

Permian Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Permian Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Permian Resources is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Coterra Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Coterra Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Coterra Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Permian Resources and Coterra Energy

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

The idea behind Permian Resources and Coterra 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.