Correlation Between Permian Resources and Southwestern Energy

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

Diversification Opportunities for Permian Resources and Southwestern Energy

0.0

Correlation Coefficient

Permian Resources  Southwestern Energy

Pay attention - limited upside

The 3 months correlation between Permian and Southwestern is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Permian Resources and Southwestern Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwestern 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 Southwestern Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwestern Energy has no effect on the direction of Permian Resources i.e., Permian Resources and Southwestern Energy go up and down completely randomly.

Pair Corralation between Permian Resources and Southwestern Energy

If you would invest (100.00) in Southwestern Energy on December 30, 2024 and sell it today you would earn a total of  100.00  from holding Southwestern Energy or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Permian Resources  vs.  Southwestern 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.

Southwestern Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southwestern Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Southwestern Energy is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Permian Resources and Southwestern Energy

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

The idea behind Permian Resources and Southwestern 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.