Correlation Between Permian Resources and Arrow Exploration

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

By analyzing existing cross correlation between Permian Resources and Arrow Exploration Corp, you can compare the effects of market volatilities on Permian Resources and Arrow Exploration 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 Arrow Exploration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Permian Resources and Arrow Exploration.

Diversification Opportunities for Permian Resources and Arrow Exploration

-0.49

Correlation Coefficient

Permian Resources  Arrow Exploration

Very good diversification

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

Pair Corralation between Permian Resources and Arrow Exploration

Allowing for the 90-day total investment horizon Permian Resources is expected to generate 1.62 times less return on investment than Arrow Exploration. But when comparing it to its historical volatility, Permian Resources is 2.24 times less risky than Arrow Exploration. It trades about 0.06 of its potential returns per unit of risk. Arrow Exploration Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  20.00  in Arrow Exploration Corp on September 13, 2024 and sell it today you would earn a total of  8.00  from holding Arrow Exploration Corp or generate 40.0% return on investment over 90 days.

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

Permian Resources  vs.  Arrow Exploration Corp

Permian Resources

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Permian Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Permian Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Arrow Exploration Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Permian Resources and Arrow Exploration

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

The idea behind Permian Resources and Arrow Exploration 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.