Correlation Between SandRidge Energy and Permianville Royalty

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

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

Diversification Opportunities for SandRidge Energy and Permianville Royalty

0.69

Correlation Coefficient

SandRidge Energy  Permianville Royalty

Poor diversification

The 3 months correlation between SandRidge and Permianville is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding SandRidge Energy and Permianville Royalty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permianville Royalty and SandRidge Energy 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 SandRidge Energy are associated (or correlated) with Permianville Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permianville Royalty has no effect on the direction of SandRidge Energy i.e., SandRidge Energy and Permianville Royalty go up and down completely randomly.

Pair Corralation between SandRidge Energy and Permianville Royalty

Allowing for the 90-day total investment horizon SandRidge Energy is expected to generate 0.62 times more return on investment than Permianville Royalty. However, SandRidge Energy is 1.62 times less risky than Permianville Royalty. It trades about 0.0 of its potential returns per unit of risk. Permianville Royalty Trust is currently generating about -0.02 per unit of risk. If you would invest  1,226  in SandRidge Energy on September 26, 2024 and sell it today you would lose (176.00) from holding SandRidge Energy or give up 14.36% of portfolio value over 90 days.

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

SandRidge Energy  vs.  Permianville Royalty Trust

SandRidge Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SandRidge Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with SandRidge Energy and Permianville Royalty

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

The idea behind SandRidge Energy and Permianville Royalty Trust 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.