Correlation Between Permian Basin and Cross Timbers
Can any of the company-specific risk be diversified away by investing in both Permian Basin and Cross Timbers 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 Permian Basin and Cross Timbers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Permian Basin Royalty and Cross Timbers Royalty, you can compare the effects of market volatilities on Permian Basin and Cross Timbers 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 Permian Basin with a short position of Cross Timbers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Permian Basin and Cross Timbers.
Diversification Opportunities for Permian Basin and Cross Timbers
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Permian and Cross is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Permian Basin Royalty and Cross Timbers Royalty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cross Timbers Royalty and Permian Basin 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 Permian Basin Royalty are associated (or correlated) with Cross Timbers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cross Timbers Royalty has no effect on the direction of Permian Basin i.e., Permian Basin and Cross Timbers go up and down completely randomly.
Pair Corralation between Permian Basin and Cross Timbers
Considering the 90-day investment horizon Permian Basin Royalty is expected to under-perform the Cross Timbers. But the stock apears to be less risky and, when comparing its historical volatility, Permian Basin Royalty is 1.05 times less risky than Cross Timbers. The stock trades about -0.19 of its potential returns per unit of risk. The Cross Timbers Royalty is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 1,012 in Cross Timbers Royalty on November 7, 2024 and sell it today you would earn a total of 75.00 from holding Cross Timbers Royalty or generate 7.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 90.48% |
| Values | Daily Returns |
Permian Basin Royalty vs. Cross Timbers Royalty
Performance |
| Timeline |
| Permian Basin Royalty |
| Cross Timbers Royalty |
Permian Basin and Cross Timbers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Permian Basin and Cross Timbers
The main advantage of trading using opposite Permian Basin and Cross Timbers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Permian Basin position performs unexpectedly, Cross Timbers 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 Cross Timbers will offset losses from the drop in Cross Timbers' long position.| Permian Basin vs. Dorian LPG | Permian Basin vs. Frontline | Permian Basin vs. Torm PLC Class | Permian Basin vs. Plains All American |
| Cross Timbers vs. Sabine Royalty Trust | Cross Timbers vs. Mesa Royalty Trust | Cross Timbers vs. San Juan Basin | Cross Timbers vs. Permian Basin Royalty |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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