Correlation Between Permian Resources and Sound Energy

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

Diversification Opportunities for Permian Resources and Sound Energy

-0.63

Correlation Coefficient

Permian Resources  Sound Energy

Excellent diversification

The 3 months correlation between Permian and Sound is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Permian Resources and Sound Energy plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sound Energy plc 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 Sound Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sound Energy plc has no effect on the direction of Permian Resources i.e., Permian Resources and Sound Energy go up and down completely randomly.

Pair Corralation between Permian Resources and Sound Energy

Allowing for the 90-day total investment horizon Permian Resources is expected to generate 44.69 times less return on investment than Sound Energy. But when comparing it to its historical volatility, Permian Resources is 2.51 times less risky than Sound Energy. It trades about 0.01 of its potential returns per unit of risk. Sound Energy plc is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2.64  in Sound Energy plc on December 28, 2024 and sell it today you would earn a total of  2.08  from holding Sound Energy plc or generate 78.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Permian Resources  vs.  Sound Energy plc

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.

Sound Energy plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sound Energy plc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Sound Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Permian Resources and Sound Energy

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

The idea behind Permian Resources and Sound Energy plc 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.