Correlation Between Mesa Royalty and Strat Petroleum

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

Diversification Opportunities for Mesa Royalty and Strat Petroleum

0.0

Correlation Coefficient

Mesa Royalty  Strat Petroleum

Pay attention - limited upside

The 3 months correlation between Mesa and Strat is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Mesa Royalty Trust and Strat Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strat Petroleum 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 Strat Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strat Petroleum has no effect on the direction of Mesa Royalty i.e., Mesa Royalty and Strat Petroleum go up and down completely randomly.

Pair Corralation between Mesa Royalty and Strat Petroleum

Considering the 90-day investment horizon Mesa Royalty Trust is expected to under-perform the Strat Petroleum. But the stock apears to be less risky and, when comparing its historical volatility, Mesa Royalty Trust is 84.84 times less risky than Strat Petroleum. The stock trades about -0.21 of its potential returns per unit of risk. The Strat Petroleum is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  0.00  in Strat Petroleum on September 24, 2024 and sell it today you would earn a total of  0.01  from holding Strat Petroleum or generate 9.223372036854776E16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Mesa Royalty Trust  vs.  Strat Petroleum

Mesa Royalty Trust

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mesa Royalty Trust are ranked lower than 4 (%) 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.

Strat Petroleum

Risk-Adjusted Performance

9 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Strat Petroleum are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Strat Petroleum disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mesa Royalty and Strat Petroleum

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

The idea behind Mesa Royalty Trust and Strat Petroleum 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.