Correlation Between Earthstone Energy and PHX Minerals

Can any of the company-specific risk be diversified away by investing in both Earthstone Energy and PHX Minerals 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 Earthstone Energy and PHX Minerals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Earthstone Energy and PHX Minerals, you can compare the effects of market volatilities on Earthstone Energy and PHX Minerals 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 Earthstone Energy with a short position of PHX Minerals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Earthstone Energy and PHX Minerals.

Diversification Opportunities for Earthstone Energy and PHX Minerals

0.67

Correlation Coefficient

Earthstone Energy  PHX Minerals

Poor diversification

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

Pair Corralation between Earthstone Energy and PHX Minerals

Given the investment horizon of 90 days Earthstone Energy is expected to generate 1.34 times more return on investment than PHX Minerals. However, Earthstone Energy is 1.34 times more volatile than PHX Minerals. It trades about 0.03 of its potential returns per unit of risk. PHX Minerals is currently generating about 0.02 per unit of risk. If you would invest  1,444  in Earthstone Energy on September 16, 2024 and sell it today you would earn a total of  88.00  from holding Earthstone Energy or generate 6.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	29.03%
Values	Daily Returns

Earthstone Energy  vs.  PHX Minerals

Earthstone Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Earthstone Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Earthstone Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

PHX Minerals

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PHX Minerals are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical indicators, PHX Minerals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Earthstone Energy and PHX Minerals

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

The idea behind Earthstone Energy and PHX Minerals 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.