Correlation Between Cross Timbers and US Energy

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

Diversification Opportunities for Cross Timbers and US Energy

0.26

Correlation Coefficient

Cross Timbers  US Energy

Modest diversification

The 3 months correlation between Cross and USEG is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Cross Timbers Royalty and US Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Energy Corp 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 US Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Energy Corp has no effect on the direction of Cross Timbers i.e., Cross Timbers and US Energy go up and down completely randomly.

Pair Corralation between Cross Timbers and US Energy

Considering the 90-day investment horizon Cross Timbers Royalty is expected to generate 0.42 times more return on investment than US Energy. However, Cross Timbers Royalty is 2.38 times less risky than US Energy. It trades about -0.36 of its potential returns per unit of risk. US Energy Corp is currently generating about -0.21 per unit of risk. If you would invest  1,087  in Cross Timbers Royalty on September 23, 2024 and sell it today you would lose (126.00) from holding Cross Timbers Royalty or give up 11.59% of portfolio value over 90 days.

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

Cross Timbers Royalty  vs.  US Energy Corp

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

US Energy Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US Energy Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, US Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cross Timbers and US Energy

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

The idea behind Cross Timbers Royalty and US Energy Corp 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.