Correlation Between Permian Resources and Calima Energy

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

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

Diversification Opportunities for Permian Resources and Calima Energy

0.49

Correlation Coefficient

Permian Resources  Calima Energy

Very weak diversification

The 3 months correlation between Permian and Calima is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Permian Resources and Calima Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Calima Energy Limited and Permian Resources 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 Permian Resources are associated (or correlated) with Calima Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Calima Energy Limited has no effect on the direction of Permian Resources i.e., Permian Resources and Calima Energy go up and down completely randomly.

Pair Corralation between Permian Resources and Calima Energy

Allowing for the 90-day total investment horizon Permian Resources is expected to generate 1.65 times less return on investment than Calima Energy. But when comparing it to its historical volatility, Permian Resources is 1.59 times less risky than Calima Energy. It trades about 0.12 of its potential returns per unit of risk. Calima Energy Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1.00  in Calima Energy Limited on September 3, 2024 and sell it today you would earn a total of  0.25  from holding Calima Energy Limited or generate 25.0% return on investment over 90 days.

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

Permian Resources  vs.  Calima Energy Limited

Permian Resources

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Permian Resources are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Permian Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Calima Energy Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Calima Energy Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Calima Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Permian Resources and Calima Energy

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

The idea behind Permian Resources and Calima Energy Limited 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.