Correlation Between PermRock Royalty and Mesa Royalty

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

By analyzing existing cross correlation between PermRock Royalty Trust and Mesa Royalty Trust, you can compare the effects of market volatilities on PermRock Royalty and Mesa Royalty 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 PermRock Royalty with a short position of Mesa Royalty. Check out your portfolio center. Please also check ongoing floating volatility patterns of PermRock Royalty and Mesa Royalty.

Diversification Opportunities for PermRock Royalty and Mesa Royalty

0.25

Correlation Coefficient

PermRock Royalty  Mesa Royalty

Modest diversification

The 3 months correlation between PermRock and Mesa is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding PermRock Royalty Trust and Mesa Royalty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mesa Royalty Trust and PermRock Royalty 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 PermRock Royalty Trust are associated (or correlated) with Mesa Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mesa Royalty Trust has no effect on the direction of PermRock Royalty i.e., PermRock Royalty and Mesa Royalty go up and down completely randomly.

Pair Corralation between PermRock Royalty and Mesa Royalty

Considering the 90-day investment horizon PermRock Royalty is expected to generate 52.31 times less return on investment than Mesa Royalty. But when comparing it to its historical volatility, PermRock Royalty Trust is 2.56 times less risky than Mesa Royalty. It trades about 0.01 of its potential returns per unit of risk. Mesa Royalty Trust is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  624.00  in Mesa Royalty Trust on August 30, 2024 and sell it today you would earn a total of  93.00  from holding Mesa Royalty Trust or generate 14.9% return on investment over 90 days.

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

PermRock Royalty Trust  vs.  Mesa Royalty Trust

PermRock Royalty Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PermRock Royalty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, PermRock Royalty is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Mesa Royalty Trust

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mesa Royalty Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Mesa Royalty reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PermRock Royalty and Mesa Royalty

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

The idea behind PermRock Royalty Trust and Mesa Royalty Trust 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.