Correlation Between Mesa Royalty and Battalion Oil

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

By analyzing existing cross correlation between Mesa Royalty Trust and Battalion Oil Corp, you can compare the effects of market volatilities on Mesa Royalty and Battalion Oil 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 Mesa Royalty with a short position of Battalion Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mesa Royalty and Battalion Oil.

Diversification Opportunities for Mesa Royalty and Battalion Oil

-0.69

Correlation Coefficient

Mesa Royalty  Battalion Oil

Excellent diversification

The 3 months correlation between Mesa and Battalion is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Mesa Royalty Trust and Battalion Oil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Battalion Oil Corp and Mesa Royalty 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 Mesa Royalty Trust are associated (or correlated) with Battalion Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Battalion Oil Corp has no effect on the direction of Mesa Royalty i.e., Mesa Royalty and Battalion Oil go up and down completely randomly.

Pair Corralation between Mesa Royalty and Battalion Oil

Considering the 90-day investment horizon Mesa Royalty Trust is expected to generate 0.37 times more return on investment than Battalion Oil. However, Mesa Royalty Trust is 2.69 times less risky than Battalion Oil. It trades about 0.04 of its potential returns per unit of risk. Battalion Oil Corp is currently generating about -0.19 per unit of risk. If you would invest  578.00  in Mesa Royalty Trust on September 25, 2024 and sell it today you would earn a total of  33.00  from holding Mesa Royalty Trust or generate 5.71% return on investment over 90 days.

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

Mesa Royalty Trust  vs.  Battalion Oil Corp

Mesa Royalty Trust

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mesa Royalty Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Mesa Royalty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Battalion Oil Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Battalion Oil Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Mesa Royalty and Battalion Oil

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

The idea behind Mesa Royalty Trust and Battalion Oil 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.