Correlation Between Gran Tierra and PrimeEnergy

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

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

Diversification Opportunities for Gran Tierra and PrimeEnergy

0.36

Correlation Coefficient

Gran Tierra  PrimeEnergy

Weak diversification

The 3 months correlation between Gran and PrimeEnergy is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Gran Tierra Energy and PrimeEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PrimeEnergy and Gran Tierra 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 Gran Tierra Energy are associated (or correlated) with PrimeEnergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PrimeEnergy has no effect on the direction of Gran Tierra i.e., Gran Tierra and PrimeEnergy go up and down completely randomly.

Pair Corralation between Gran Tierra and PrimeEnergy

Considering the 90-day investment horizon Gran Tierra is expected to generate 3.94 times less return on investment than PrimeEnergy. But when comparing it to its historical volatility, Gran Tierra Energy is 1.25 times less risky than PrimeEnergy. It trades about 0.05 of its potential returns per unit of risk. PrimeEnergy is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  13,400  in PrimeEnergy on September 17, 2024 and sell it today you would earn a total of  5,566  from holding PrimeEnergy or generate 41.54% return on investment over 90 days.

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

Gran Tierra Energy  vs.  PrimeEnergy

Gran Tierra Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gran Tierra Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Gran Tierra may actually be approaching a critical reversion point that can send shares even higher in January 2025.

PrimeEnergy

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Gran Tierra and PrimeEnergy

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

The idea behind Gran Tierra Energy and PrimeEnergy 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.