Correlation Between Woodside Petroleum and Sitio Royalties

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

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

Diversification Opportunities for Woodside Petroleum and Sitio Royalties

-0.08

Correlation Coefficient

Woodside Petroleum  Sitio Royalties

Good diversification

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

Pair Corralation between Woodside Petroleum and Sitio Royalties

Assuming the 90 days horizon Woodside Petroleum is expected to generate 2.41 times more return on investment than Sitio Royalties. However, Woodside Petroleum is 2.41 times more volatile than Sitio Royalties Corp. It trades about 0.01 of its potential returns per unit of risk. Sitio Royalties Corp is currently generating about -0.23 per unit of risk. If you would invest  1,525  in Woodside Petroleum on September 14, 2024 and sell it today you would lose (11.00) from holding Woodside Petroleum or give up 0.72% of portfolio value over 90 days.

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

Woodside Petroleum  vs.  Sitio Royalties Corp

Woodside Petroleum

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Woodside Petroleum are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Woodside Petroleum may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sitio Royalties Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sitio Royalties Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Sitio Royalties is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Woodside Petroleum and Sitio Royalties

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

The idea behind Woodside Petroleum and Sitio Royalties Corp 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.