Correlation Between San Juan and Kimbell Royalty

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

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

Diversification Opportunities for San Juan and Kimbell Royalty

0.75

Correlation Coefficient

San Juan  Kimbell Royalty

Poor diversification

The 3 months correlation between San and Kimbell is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding San Juan Basin and Kimbell Royalty Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kimbell Royalty Partners and San Juan 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 San Juan Basin are associated (or correlated) with Kimbell Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kimbell Royalty Partners has no effect on the direction of San Juan i.e., San Juan and Kimbell Royalty go up and down completely randomly.

Pair Corralation between San Juan and Kimbell Royalty

Considering the 90-day investment horizon San Juan Basin is expected to generate 2.82 times more return on investment than Kimbell Royalty. However, San Juan is 2.82 times more volatile than Kimbell Royalty Partners. It trades about 0.2 of its potential returns per unit of risk. Kimbell Royalty Partners is currently generating about 0.11 per unit of risk. If you would invest  322.00  in San Juan Basin on September 3, 2024 and sell it today you would earn a total of  125.00  from holding San Juan Basin or generate 38.82% return on investment over 90 days.

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

San Juan Basin  vs.  Kimbell Royalty Partners

San Juan Basin

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in San Juan Basin are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward-looking indicators, San Juan unveiled solid returns over the last few months and may actually be approaching a breakup point.

Kimbell Royalty Partners

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kimbell Royalty Partners are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Kimbell Royalty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with San Juan and Kimbell Royalty

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

The idea behind San Juan Basin and Kimbell Royalty Partners 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.