Correlation Between Northern Oil and Permianville Royalty

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

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

Diversification Opportunities for Northern Oil and Permianville Royalty

0.06

Correlation Coefficient

Northern Oil  Permianville Royalty

Significant diversification

The 3 months correlation between Northern and Permianville is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Northern Oil Gas and Permianville Royalty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permianville Royalty and Northern Oil 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 Northern Oil Gas are associated (or correlated) with Permianville Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permianville Royalty has no effect on the direction of Northern Oil i.e., Northern Oil and Permianville Royalty go up and down completely randomly.

Pair Corralation between Northern Oil and Permianville Royalty

Considering the 90-day investment horizon Northern Oil Gas is expected to under-perform the Permianville Royalty. But the stock apears to be less risky and, when comparing its historical volatility, Northern Oil Gas is 1.0 times less risky than Permianville Royalty. The stock trades about -0.54 of its potential returns per unit of risk. The Permianville Royalty Trust is currently generating about -0.32 of returns per unit of risk over similar time horizon. If you would invest  154.00  in Permianville Royalty Trust on September 24, 2024 and sell it today you would lose (18.00) from holding Permianville Royalty Trust or give up 11.69% of portfolio value over 90 days.

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

Northern Oil Gas  vs.  Permianville Royalty Trust

Northern Oil Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Northern Oil is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Permianville Royalty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Permianville Royalty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak 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 Northern Oil and Permianville Royalty

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

The idea behind Northern Oil Gas and Permianville Royalty Trust 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.