Correlation Between Texas Pacific and APA

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

By analyzing existing cross correlation between Texas Pacific Land and APA Corporation, you can compare the effects of market volatilities on Texas Pacific and APA 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 Texas Pacific with a short position of APA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Texas Pacific and APA.

Diversification Opportunities for Texas Pacific and APA

0.08

Correlation Coefficient

Texas Pacific  APA

Significant diversification

The 3 months correlation between Texas and APA is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Texas Pacific Land and APA Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on APA Corporation and Texas Pacific 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 Texas Pacific Land are associated (or correlated) with APA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of APA Corporation has no effect on the direction of Texas Pacific i.e., Texas Pacific and APA go up and down completely randomly.

Pair Corralation between Texas Pacific and APA

Considering the 90-day investment horizon Texas Pacific Land is expected to generate 1.26 times more return on investment than APA. However, Texas Pacific is 1.26 times more volatile than APA Corporation. It trades about 0.1 of its potential returns per unit of risk. APA Corporation is currently generating about -0.01 per unit of risk. If you would invest  116,570  in Texas Pacific Land on December 26, 2024 and sell it today you would earn a total of  19,666  from holding Texas Pacific Land or generate 16.87% return on investment over 90 days.

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

Texas Pacific Land  vs.  APA Corp.

Texas Pacific Land

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Pacific Land are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Texas Pacific disclosed solid returns over the last few months and may actually be approaching a breakup point.

APA Corporation

Risk-Adjusted Performance

Very Weak

Over the last 90 days APA Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, APA is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Texas Pacific and APA

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

The idea behind Texas Pacific Land and APA Corporation 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.