Correlation Between Permian Resources and Diamondback Energy

Can any of the company-specific risk be diversified away by investing in both Permian Resources and Diamondback 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 Diamondback 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 Diamondback Energy, you can compare the effects of market volatilities on Permian Resources and Diamondback 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 Diamondback Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Permian Resources and Diamondback Energy.

Diversification Opportunities for Permian Resources and Diamondback Energy

0.96

Correlation Coefficient

Permian Resources  Diamondback Energy

Almost no diversification

The 3 months correlation between Permian and Diamondback is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Permian Resources and Diamondback Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondback 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 Diamondback Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondback Energy has no effect on the direction of Permian Resources i.e., Permian Resources and Diamondback Energy go up and down completely randomly.

Pair Corralation between Permian Resources and Diamondback Energy

Allowing for the 90-day total investment horizon Permian Resources is not expected to generate positive returns. Moreover, Permian Resources is 1.25 times more volatile than Diamondback Energy. It trades away all of its potential returns to assume current level of volatility. Diamondback Energy is currently generating about 0.0 per unit of risk. If you would invest  1,398  in Permian Resources on December 30, 2024 and sell it today you would lose (23.00) from holding Permian Resources or give up 1.65% of portfolio value over 90 days.

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

Permian Resources  vs.  Diamondback 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.

Diamondback Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamondback Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Diamondback Energy is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Permian Resources and Diamondback Energy

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

The idea behind Permian Resources and Diamondback 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.