Correlation Between Northern Oil and PrimeEnergy
Can any of the company-specific risk be diversified away by investing in both Northern Oil and PrimeEnergy 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 Northern Oil and PrimeEnergy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Oil Gas and PrimeEnergy, you can compare the effects of market volatilities on Northern Oil and PrimeEnergy 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 Northern Oil with a short position of PrimeEnergy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Oil and PrimeEnergy.
Diversification Opportunities for Northern Oil and PrimeEnergy
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Northern and PrimeEnergy is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Northern Oil Gas and PrimeEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PrimeEnergy and Northern Oil 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 Northern Oil Gas are associated (or correlated) with PrimeEnergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PrimeEnergy has no effect on the direction of Northern Oil i.e., Northern Oil and PrimeEnergy go up and down completely randomly.
Pair Corralation between Northern Oil and PrimeEnergy
Considering the 90-day investment horizon Northern Oil is expected to generate 3.37 times less return on investment than PrimeEnergy. But when comparing it to its historical volatility, Northern Oil Gas is 1.33 times less risky than PrimeEnergy. It trades about 0.04 of its potential returns per unit of risk. PrimeEnergy is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 10,501 in PrimeEnergy on August 24, 2024 and sell it today you would earn a total of 10,099 from holding PrimeEnergy or generate 96.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Oil Gas vs. PrimeEnergy
Performance |
| Timeline |
| Northern Oil Gas |
| PrimeEnergy |
Northern Oil and PrimeEnergy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Oil and PrimeEnergy
The main advantage of trading using opposite Northern Oil and PrimeEnergy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Oil position performs unexpectedly, PrimeEnergy 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 PrimeEnergy will offset losses from the drop in PrimeEnergy's long position.| Northern Oil vs. Houston American Energy | Northern Oil vs. Mexco Energy | Northern Oil vs. Ring Energy | Northern Oil vs. Permianville Royalty Trust |
| PrimeEnergy vs. Houston American Energy | PrimeEnergy vs. Mexco Energy | PrimeEnergy vs. Ring Energy | PrimeEnergy vs. Permianville Royalty Trust |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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