Correlation Between Permian Resources and GeoPark

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

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

Diversification Opportunities for Permian Resources and GeoPark

0.67

Correlation Coefficient

Permian Resources  GeoPark

Poor diversification

The 3 months correlation between Permian and GeoPark is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Permian Resources and GeoPark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GeoPark 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 GeoPark. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GeoPark has no effect on the direction of Permian Resources i.e., Permian Resources and GeoPark go up and down completely randomly.

Pair Corralation between Permian Resources and GeoPark

Allowing for the 90-day total investment horizon Permian Resources is expected to generate 1.12 times less return on investment than GeoPark. But when comparing it to its historical volatility, Permian Resources is 1.43 times less risky than GeoPark. It trades about 0.12 of its potential returns per unit of risk. GeoPark is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  839.00  in GeoPark on September 2, 2024 and sell it today you would earn a total of  131.00  from holding GeoPark or generate 15.61% return on investment over 90 days.

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

Permian Resources  vs.  GeoPark

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.

GeoPark

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GeoPark are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, GeoPark disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Permian Resources and GeoPark

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

The idea behind Permian Resources and GeoPark 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.