Correlation Between Permian Resources and Energy Revenue

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

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

Diversification Opportunities for Permian Resources and Energy Revenue

-0.53

Correlation Coefficient

Permian Resources  Energy Revenue

Excellent diversification

The 3 months correlation between Permian and Energy is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Permian Resources and Energy Revenue Amer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Revenue Amer 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 Energy Revenue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Revenue Amer has no effect on the direction of Permian Resources i.e., Permian Resources and Energy Revenue go up and down completely randomly.

Pair Corralation between Permian Resources and Energy Revenue

Allowing for the 90-day total investment horizon Permian Resources is expected to generate 300.9 times less return on investment than Energy Revenue. But when comparing it to its historical volatility, Permian Resources is 17.9 times less risky than Energy Revenue. It trades about 0.01 of its potential returns per unit of risk. Energy Revenue Amer is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  5.20  in Energy Revenue Amer on December 28, 2024 and sell it today you would earn a total of  2.79  from holding Energy Revenue Amer or generate 53.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Permian Resources  vs.  Energy Revenue Amer

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.

Energy Revenue Amer

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Revenue Amer are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Energy Revenue displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Permian Resources and Energy Revenue

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

The idea behind Permian Resources and Energy Revenue Amer 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.