Correlation Between Permian Resources and US Energy

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

Diversification Opportunities for Permian Resources and US Energy

0.71

Correlation Coefficient

Permian Resources  US Energy

Poor diversification

The 3 months correlation between Permian and USEG is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Permian Resources and US Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Energy 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 US Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Energy Corp has no effect on the direction of Permian Resources i.e., Permian Resources and US Energy go up and down completely randomly.

Pair Corralation between Permian Resources and US Energy

Allowing for the 90-day total investment horizon Permian Resources is expected to under-perform the US Energy. But the stock apears to be less risky and, when comparing its historical volatility, Permian Resources is 2.63 times less risky than US Energy. The stock trades about -0.01 of its potential returns per unit of risk. The US Energy Corp is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  97.00  in US Energy Corp on September 23, 2024 and sell it today you would earn a total of  58.00  from holding US Energy Corp or generate 59.79% 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.  US Energy Corp

Permian Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Permian Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Permian Resources is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

US Energy Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US Energy Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, US Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Permian Resources and US Energy

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

The idea behind Permian Resources and US Energy 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.