Correlation Between Cross Timbers and PetroShale

Can any of the company-specific risk be diversified away by investing in both Cross Timbers and PetroShale 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 PetroShale 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 PetroShale, you can compare the effects of market volatilities on Cross Timbers and PetroShale 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 PetroShale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cross Timbers and PetroShale.

Diversification Opportunities for Cross Timbers and PetroShale

0.19

Correlation Coefficient

Cross Timbers  PetroShale

Average diversification

The 3 months correlation between Cross and PetroShale is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Cross Timbers Royalty and PetroShale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroShale 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 PetroShale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroShale has no effect on the direction of Cross Timbers i.e., Cross Timbers and PetroShale go up and down completely randomly.

Pair Corralation between Cross Timbers and PetroShale

Considering the 90-day investment horizon Cross Timbers Royalty is expected to under-perform the PetroShale. In addition to that, Cross Timbers is 1.02 times more volatile than PetroShale. It trades about -0.03 of its total potential returns per unit of risk. PetroShale is currently generating about -0.01 per unit of volatility. If you would invest  39.00  in PetroShale on September 26, 2024 and sell it today you would lose (11.00) from holding PetroShale or give up 28.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Cross Timbers Royalty  vs.  PetroShale

Cross Timbers Royalty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cross Timbers Royalty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cross Timbers is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

PetroShale

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PetroShale has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Cross Timbers and PetroShale

The main advantage of trading using opposite Cross Timbers and PetroShale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cross Timbers position performs unexpectedly, PetroShale 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 PetroShale will offset losses from the drop in PetroShale's long position.

The idea behind Cross Timbers Royalty and PetroShale pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..