Correlation Between Sabine Royalty and Permian Basin

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

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

Diversification Opportunities for Sabine Royalty and Permian Basin

-0.02

Correlation Coefficient

Sabine Royalty  Permian Basin

Good diversification

The 3 months correlation between Sabine and Permian is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Sabine Royalty Trust and Permian Basin Royalty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permian Basin Royalty and Sabine 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 Sabine Royalty Trust are associated (or correlated) with Permian Basin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permian Basin Royalty has no effect on the direction of Sabine Royalty i.e., Sabine Royalty and Permian Basin go up and down completely randomly.

Pair Corralation between Sabine Royalty and Permian Basin

Considering the 90-day investment horizon Sabine Royalty Trust is expected to generate 0.54 times more return on investment than Permian Basin. However, Sabine Royalty Trust is 1.84 times less risky than Permian Basin. It trades about 0.08 of its potential returns per unit of risk. Permian Basin Royalty is currently generating about -0.06 per unit of risk. If you would invest  6,358  in Sabine Royalty Trust on December 28, 2024 and sell it today you would earn a total of  319.00  from holding Sabine Royalty Trust or generate 5.02% return on investment over 90 days.

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

Sabine Royalty Trust  vs.  Permian Basin Royalty

Sabine Royalty Trust

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sabine Royalty Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, Sabine Royalty is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Permian Basin Royalty

Risk-Adjusted Performance

Very Weak

Over the last 90 days Permian Basin Royalty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Sabine Royalty and Permian Basin

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

The idea behind Sabine Royalty Trust and Permian Basin Royalty 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.