Correlation Between PetroShale and Civitas Resources

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

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

Diversification Opportunities for PetroShale and Civitas Resources

-0.67

Correlation Coefficient

PetroShale  Civitas Resources

Excellent diversification

The 3 months correlation between PetroShale and Civitas is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding PetroShale and Civitas Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Civitas Resources and PetroShale 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 PetroShale are associated (or correlated) with Civitas Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Civitas Resources has no effect on the direction of PetroShale i.e., PetroShale and Civitas Resources go up and down completely randomly.

Pair Corralation between PetroShale and Civitas Resources

Assuming the 90 days horizon PetroShale is expected to under-perform the Civitas Resources. But the otc stock apears to be less risky and, when comparing its historical volatility, PetroShale is 15.43 times less risky than Civitas Resources. The otc stock trades about -0.02 of its potential returns per unit of risk. The Civitas Resources is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  17.00  in Civitas Resources on December 30, 2024 and sell it today you would lose (14.00) from holding Civitas Resources or give up 82.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	77.42%
Values	Daily Returns

PetroShale  vs.  Civitas Resources

PetroShale

Risk-Adjusted Performance

Very Weak

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

Civitas Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Civitas Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile forward indicators, Civitas Resources demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PetroShale and Civitas Resources

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

The idea behind PetroShale and Civitas Resources 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.