Correlation Between Vital Energy and Prairie Provident

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

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

Diversification Opportunities for Vital Energy and Prairie Provident

-0.18

Correlation Coefficient

Vital Energy  Prairie Provident

Good diversification

The 3 months correlation between Vital and Prairie is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Vital Energy and Prairie Provident Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prairie Provident 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 Prairie Provident. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prairie Provident has no effect on the direction of Vital Energy i.e., Vital Energy and Prairie Provident go up and down completely randomly.

Pair Corralation between Vital Energy and Prairie Provident

Assuming the 90 days horizon Vital Energy is expected to generate 2.69 times less return on investment than Prairie Provident. But when comparing it to its historical volatility, Vital Energy is 1.65 times less risky than Prairie Provident. It trades about 0.02 of its potential returns per unit of risk. Prairie Provident Resources is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  7.00  in Prairie Provident Resources on October 12, 2024 and sell it today you would lose (1.50) from holding Prairie Provident Resources or give up 21.43% of portfolio value over 90 days.

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

Vital Energy  vs.  Prairie Provident Resources

Vital Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vital Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Vital Energy is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Prairie Provident

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prairie Provident Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Prairie Provident displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vital Energy and Prairie Provident

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

The idea behind Vital Energy and Prairie Provident 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.