Correlation Between Cross Timbers and SandRidge Mississippian

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

Diversification Opportunities for Cross Timbers and SandRidge Mississippian

-0.11

Correlation Coefficient

Cross Timbers  SandRidge Mississippian

Good diversification

The 3 months correlation between Cross and SandRidge is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Cross Timbers Royalty and SandRidge Mississippian Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SandRidge Mississippian 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 SandRidge Mississippian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SandRidge Mississippian has no effect on the direction of Cross Timbers i.e., Cross Timbers and SandRidge Mississippian go up and down completely randomly.

Pair Corralation between Cross Timbers and SandRidge Mississippian

Considering the 90-day investment horizon Cross Timbers Royalty is expected to under-perform the SandRidge Mississippian. But the stock apears to be less risky and, when comparing its historical volatility, Cross Timbers Royalty is 2.42 times less risky than SandRidge Mississippian. The stock trades about -0.03 of its potential returns per unit of risk. The SandRidge Mississippian Trust is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  10.00  in SandRidge Mississippian Trust on September 26, 2024 and sell it today you would lose (3.50) from holding SandRidge Mississippian Trust or give up 35.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	27.82%
Values	Daily Returns

Cross Timbers Royalty  vs.  SandRidge Mississippian Trust

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.

SandRidge Mississippian

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Cross Timbers and SandRidge Mississippian

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

The idea behind Cross Timbers Royalty and SandRidge Mississippian Trust 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.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.