Correlation Between Permianville Royalty and North European

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

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

Diversification Opportunities for Permianville Royalty and North European

0.39

Correlation Coefficient

Permianville Royalty  North European

Weak diversification

The 3 months correlation between Permianville and North is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Permianville Royalty Trust and North European Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North European Oil and Permianville 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 Permianville Royalty Trust are associated (or correlated) with North European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North European Oil has no effect on the direction of Permianville Royalty i.e., Permianville Royalty and North European go up and down completely randomly.

Pair Corralation between Permianville Royalty and North European

Considering the 90-day investment horizon Permianville Royalty is expected to generate 1.48 times less return on investment than North European. But when comparing it to its historical volatility, Permianville Royalty Trust is 1.87 times less risky than North European. It trades about 0.13 of its potential returns per unit of risk. North European Oil is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  389.00  in North European Oil on December 30, 2024 and sell it today you would earn a total of  83.00  from holding North European Oil or generate 21.34% return on investment over 90 days.

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

Permianville Royalty Trust  vs.  North European Oil

Permianville Royalty

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Permianville Royalty Trust are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Permianville Royalty disclosed solid returns over the last few months and may actually be approaching a breakup point.

North European Oil

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North European Oil are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, North European unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Permianville Royalty and North European

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

The idea behind Permianville Royalty Trust and North European Oil 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.