Correlation Between Prairie Provident and Battalion Oil

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

By analyzing existing cross correlation between Prairie Provident Resources and Battalion Oil Corp, you can compare the effects of market volatilities on Prairie Provident and Battalion Oil 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 Prairie Provident with a short position of Battalion Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prairie Provident and Battalion Oil.

Diversification Opportunities for Prairie Provident and Battalion Oil

0.3

Correlation Coefficient

Prairie Provident  Battalion Oil

Weak diversification

The 3 months correlation between Prairie and Battalion is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Prairie Provident Resources and Battalion Oil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Battalion Oil Corp and Prairie Provident 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 Prairie Provident Resources are associated (or correlated) with Battalion Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Battalion Oil Corp has no effect on the direction of Prairie Provident i.e., Prairie Provident and Battalion Oil go up and down completely randomly.

Pair Corralation between Prairie Provident and Battalion Oil

Assuming the 90 days horizon Prairie Provident is expected to generate 10.15 times less return on investment than Battalion Oil. But when comparing it to its historical volatility, Prairie Provident Resources is 1.29 times less risky than Battalion Oil. It trades about 0.01 of its potential returns per unit of risk. Battalion Oil Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  305.00  in Battalion Oil Corp on September 17, 2024 and sell it today you would lose (3.00) from holding Battalion Oil Corp or give up 0.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Prairie Provident Resources  vs.  Battalion Oil Corp

Prairie Provident

Risk-Adjusted Performance

0 of 100

Very Weak

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

Battalion Oil Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Battalion Oil Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Battalion Oil disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prairie Provident and Battalion Oil

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

The idea behind Prairie Provident Resources and Battalion Oil 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.