Correlation Between Delek Drilling and Royalty Management

Can any of the company-specific risk be diversified away by investing in both Delek Drilling and Royalty Management 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 Delek Drilling and Royalty Management into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Delek Drilling and Royalty Management Holding, you can compare the effects of market volatilities on Delek Drilling and Royalty Management 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 Delek Drilling with a short position of Royalty Management. Check out your portfolio center. Please also check ongoing floating volatility patterns of Delek Drilling and Royalty Management.

Diversification Opportunities for Delek Drilling and Royalty Management

0.67

Correlation Coefficient

Delek Drilling  Royalty Management

Poor diversification

The 3 months correlation between Delek and Royalty is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Delek Drilling and Royalty Management Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royalty Management and Delek Drilling 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 Delek Drilling are associated (or correlated) with Royalty Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royalty Management has no effect on the direction of Delek Drilling i.e., Delek Drilling and Royalty Management go up and down completely randomly.

Pair Corralation between Delek Drilling and Royalty Management

Assuming the 90 days horizon Delek Drilling is expected to generate 1.02 times less return on investment than Royalty Management. But when comparing it to its historical volatility, Delek Drilling is 1.78 times less risky than Royalty Management. It trades about 0.18 of its potential returns per unit of risk. Royalty Management Holding is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  93.00  in Royalty Management Holding on September 24, 2024 and sell it today you would earn a total of  25.00  from holding Royalty Management Holding or generate 26.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Delek Drilling   vs.  Royalty Management Holding

Delek Drilling

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Delek Drilling are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Delek Drilling reported solid returns over the last few months and may actually be approaching a breakup point.

Royalty Management

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royalty Management Holding are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Royalty Management displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Delek Drilling and Royalty Management

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

The idea behind Delek Drilling and Royalty Management Holding 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.