Correlation Between Sabine Royalty and Permian Resources

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

Diversification Opportunities for Sabine Royalty and Permian Resources

0.56

Correlation Coefficient

Sabine Royalty  Permian Resources

Very weak diversification

The 3 months correlation between Sabine and Permian is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Sabine Royalty Trust and Permian Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permian Resources 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 Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permian Resources has no effect on the direction of Sabine Royalty i.e., Sabine Royalty and Permian Resources go up and down completely randomly.

Pair Corralation between Sabine Royalty and Permian Resources

Considering the 90-day investment horizon Sabine Royalty Trust is expected to generate 0.64 times more return on investment than Permian Resources. However, Sabine Royalty Trust is 1.56 times less risky than Permian Resources. It trades about 0.02 of its potential returns per unit of risk. Permian Resources is currently generating about -0.04 per unit of risk. If you would invest  6,252  in Sabine Royalty Trust on September 29, 2024 and sell it today you would earn a total of  148.00  from holding Sabine Royalty Trust or generate 2.37% return on investment over 90 days.

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

Sabine Royalty Trust  vs.  Permian Resources

Sabine Royalty Trust

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sabine Royalty Trust are ranked lower than 5 (%) 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 Resources

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Permian Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Permian Resources is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Sabine Royalty and Permian Resources

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

The idea behind Sabine Royalty Trust and Permian 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.