Correlation Between US Energy and Cross Timbers
Can any of the company-specific risk be diversified away by investing in both US Energy 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 US Energy and Cross Timbers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between US Energy Corp and Cross Timbers Royalty, you can compare the effects of market volatilities on US Energy 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 US Energy with a short position of Cross Timbers. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Energy and Cross Timbers.
Diversification Opportunities for US Energy and Cross Timbers
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between USEG and Cross is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding US Energy Corp 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 US Energy 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 US Energy Corp 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 US Energy i.e., US Energy and Cross Timbers go up and down completely randomly.
Pair Corralation between US Energy and Cross Timbers
Given the investment horizon of 90 days US Energy Corp is expected to generate 1.63 times more return on investment than Cross Timbers. However, US Energy is 1.63 times more volatile than Cross Timbers Royalty. It trades about 0.12 of its potential returns per unit of risk. Cross Timbers Royalty is currently generating about -0.04 per unit of risk. If you would invest 107.00 in US Energy Corp on September 1, 2024 and sell it today you would earn a total of 78.00 from holding US Energy Corp or generate 72.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
US Energy Corp vs. Cross Timbers Royalty
Performance |
| Timeline |
| US Energy Corp |
| Cross Timbers Royalty |
US Energy and Cross Timbers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with US Energy and Cross Timbers
The main advantage of trading using opposite US Energy and Cross Timbers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Energy 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.| US Energy vs. PEDEVCO Corp | US Energy vs. Houston American Energy | US Energy vs. PHX Minerals | US Energy vs. Trio Petroleum Corp |
| 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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