Correlation Between Vital Energy and PetroShale

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

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

Diversification Opportunities for Vital Energy and PetroShale

-0.27

Correlation Coefficient

Vital Energy  PetroShale

Very good diversification

The 3 months correlation between Vital and PetroShale is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Vital Energy and PetroShale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroShale and Vital 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 Vital Energy are associated (or correlated) with PetroShale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroShale has no effect on the direction of Vital Energy i.e., Vital Energy and PetroShale go up and down completely randomly.

Pair Corralation between Vital Energy and PetroShale

Given the investment horizon of 90 days Vital Energy is expected to generate 0.82 times more return on investment than PetroShale. However, Vital Energy is 1.22 times less risky than PetroShale. It trades about 0.25 of its potential returns per unit of risk. PetroShale is currently generating about -0.04 per unit of risk. If you would invest  3,061  in Vital Energy on October 11, 2024 and sell it today you would earn a total of  374.00  from holding Vital Energy or generate 12.22% return on investment over 90 days.

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

Vital Energy  vs.  PetroShale

Vital Energy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vital Energy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, Vital Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

PetroShale

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PetroShale has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's forward indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Vital Energy and PetroShale

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

The idea behind Vital Energy and PetroShale 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 Transaction History module to view history of all your transactions and understand their impact on performance.