Correlation Between Permian Resources and Northern Oil

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

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

Diversification Opportunities for Permian Resources and Northern Oil

0.83

Correlation Coefficient

Permian Resources  Northern Oil

Very poor diversification

The 3 months correlation between Permian and Northern is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Permian Resources and Northern Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Oil Gas 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 Northern Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Oil Gas has no effect on the direction of Permian Resources i.e., Permian Resources and Northern Oil go up and down completely randomly.

Pair Corralation between Permian Resources and Northern Oil

Allowing for the 90-day total investment horizon Permian Resources is expected to generate 0.93 times more return on investment than Northern Oil. However, Permian Resources is 1.07 times less risky than Northern Oil. It trades about -0.11 of its potential returns per unit of risk. Northern Oil Gas is currently generating about -0.23 per unit of risk. If you would invest  1,566  in Permian Resources on November 28, 2024 and sell it today you would lose (199.00) from holding Permian Resources or give up 12.71% of portfolio value over 90 days.

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

Permian Resources  vs.  Northern Oil Gas

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 unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in March 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Northern Oil Gas

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Permian Resources and Northern Oil

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

The idea behind Permian Resources and Northern Oil Gas 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.