Correlation Between Cross Timbers and Permian Basin
Can any of the company-specific risk be diversified away by investing in both Cross Timbers and Permian Basin 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 Cross Timbers and Permian Basin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cross Timbers Royalty and Permian Basin Royalty, you can compare the effects of market volatilities on Cross Timbers and Permian Basin 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 Cross Timbers with a short position of Permian Basin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cross Timbers and Permian Basin.
Diversification Opportunities for Cross Timbers and Permian Basin
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Cross and Permian is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Cross Timbers Royalty and Permian Basin Royalty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permian Basin Royalty and Cross Timbers 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 Cross Timbers Royalty are associated (or correlated) with Permian Basin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permian Basin Royalty has no effect on the direction of Cross Timbers i.e., Cross Timbers and Permian Basin go up and down completely randomly.
Pair Corralation between Cross Timbers and Permian Basin
Considering the 90-day investment horizon Cross Timbers Royalty is expected to under-perform the Permian Basin. In addition to that, Cross Timbers is 1.16 times more volatile than Permian Basin Royalty. It trades about -0.02 of its total potential returns per unit of risk. Permian Basin Royalty is currently generating about -0.02 per unit of volatility. If you would invest 2,055 in Permian Basin Royalty on September 2, 2024 and sell it today you would lose (703.00) from holding Permian Basin Royalty or give up 34.21% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cross Timbers Royalty vs. Permian Basin Royalty
Performance |
| Timeline |
| Cross Timbers Royalty |
| Permian Basin Royalty |
Cross Timbers and Permian Basin Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cross Timbers and Permian Basin
The main advantage of trading using opposite Cross Timbers and Permian Basin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cross Timbers position performs unexpectedly, Permian Basin 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 Permian Basin will offset losses from the drop in Permian Basin's long position.| Cross Timbers vs. Sabine Royalty Trust | Cross Timbers vs. Mesa Royalty Trust | Cross Timbers vs. San Juan Basin | Cross Timbers vs. Permian Basin Royalty |
| Permian Basin vs. Dorian LPG | Permian Basin vs. Frontline | Permian Basin vs. Torm PLC Class | Permian Basin vs. Plains All American |
Check out your portfolio center.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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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