Correlation Between PetroShale and Cross Timbers

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

By analyzing existing cross correlation between PetroShale and Cross Timbers Royalty, you can compare the effects of market volatilities on PetroShale and Cross Timbers 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 PetroShale with a short position of Cross Timbers. Check out your portfolio center. Please also check ongoing floating volatility patterns of PetroShale and Cross Timbers.

Diversification Opportunities for PetroShale and Cross Timbers

0.19

Correlation Coefficient

PetroShale  Cross Timbers

Average diversification

The 3 months correlation between PetroShale and Cross is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding PetroShale and Cross Timbers Royalty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cross Timbers Royalty and PetroShale 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 PetroShale are associated (or correlated) with Cross Timbers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cross Timbers Royalty has no effect on the direction of PetroShale i.e., PetroShale and Cross Timbers go up and down completely randomly.

Pair Corralation between PetroShale and Cross Timbers

Assuming the 90 days horizon PetroShale is expected to under-perform the Cross Timbers. In addition to that, PetroShale is 1.08 times more volatile than Cross Timbers Royalty. It trades about -0.15 of its total potential returns per unit of risk. Cross Timbers Royalty is currently generating about -0.03 per unit of volatility. If you would invest  1,013  in Cross Timbers Royalty on September 26, 2024 and sell it today you would lose (56.00) from holding Cross Timbers Royalty or give up 5.53% of portfolio value over 90 days.

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

PetroShale  vs.  Cross Timbers Royalty

PetroShale

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PetroShale has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Cross Timbers Royalty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cross Timbers Royalty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cross Timbers is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with PetroShale and Cross Timbers

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

The idea behind PetroShale and Cross Timbers Royalty 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.