Correlation Between Permian Basin and Imperial Petroleum
Can any of the company-specific risk be diversified away by investing in both Permian Basin and Imperial Petroleum 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 Imperial Petroleum 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 Imperial Petroleum, you can compare the effects of market volatilities on Permian Basin and Imperial Petroleum 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 Imperial Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Permian Basin and Imperial Petroleum.
Diversification Opportunities for Permian Basin and Imperial Petroleum
-0.54 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Permian and Imperial is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Permian Basin Royalty and Imperial Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Petroleum 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 Imperial Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Petroleum has no effect on the direction of Permian Basin i.e., Permian Basin and Imperial Petroleum go up and down completely randomly.
Pair Corralation between Permian Basin and Imperial Petroleum
Considering the 90-day investment horizon Permian Basin Royalty is expected to under-perform the Imperial Petroleum. But the stock apears to be less risky and, when comparing its historical volatility, Permian Basin Royalty is 2.06 times less risky than Imperial Petroleum. The stock trades about -0.03 of its potential returns per unit of risk. The Imperial Petroleum is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 272.00 in Imperial Petroleum on August 27, 2024 and sell it today you would earn a total of 65.00 from holding Imperial Petroleum or generate 23.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Permian Basin Royalty vs. Imperial Petroleum
Performance |
| Timeline |
| Permian Basin Royalty |
| Imperial Petroleum |
Permian Basin and Imperial Petroleum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Permian Basin and Imperial Petroleum
The main advantage of trading using opposite Permian Basin and Imperial Petroleum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Permian Basin position performs unexpectedly, Imperial Petroleum 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 Imperial Petroleum will offset losses from the drop in Imperial Petroleum's long position.| Permian Basin vs. Dorian LPG | Permian Basin vs. Frontline | Permian Basin vs. Torm PLC Class | Permian Basin vs. Plains All American |
| Imperial Petroleum vs. Western Midstream Partners | Imperial Petroleum vs. DT Midstream | Imperial Petroleum vs. MPLX LP | Imperial Petroleum vs. BP Prudhoe Bay |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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