Correlation Between Permianville Royalty and SM Energy

Can any of the company-specific risk be diversified away by investing in both Permianville Royalty and SM 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 Permianville Royalty and SM Energy 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 SM Energy Co, you can compare the effects of market volatilities on Permianville Royalty and SM 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 Permianville Royalty with a short position of SM Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Permianville Royalty and SM Energy.

Diversification Opportunities for Permianville Royalty and SM Energy

0.68

Correlation Coefficient

Permianville Royalty  SM Energy

Poor diversification

The 3 months correlation between Permianville and SM Energy is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Permianville Royalty Trust and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy 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 SM Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Energy has no effect on the direction of Permianville Royalty i.e., Permianville Royalty and SM Energy go up and down completely randomly.

Pair Corralation between Permianville Royalty and SM Energy

Considering the 90-day investment horizon Permianville Royalty Trust is expected to generate 0.87 times more return on investment than SM Energy. However, Permianville Royalty Trust is 1.15 times less risky than SM Energy. It trades about -0.42 of its potential returns per unit of risk. SM Energy Co is currently generating about -0.39 per unit of risk. If you would invest  156.00  in Permianville Royalty Trust on September 27, 2024 and sell it today you would lose (23.00) from holding Permianville Royalty Trust or give up 14.74% of portfolio value over 90 days.

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

Permianville Royalty Trust  vs.  SM Energy Co

Permianville Royalty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Permianville Royalty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

SM Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SM Energy Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, SM 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 Permianville Royalty and SM Energy

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

The idea behind Permianville Royalty Trust and SM Energy Co 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.