Correlation Between PetroShale and Permianville Royalty

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

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

Diversification Opportunities for PetroShale and Permianville Royalty

0.46

Correlation Coefficient

PetroShale  Permianville Royalty

Very weak diversification

The 3 months correlation between PetroShale and Permianville is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding PetroShale and Permianville Royalty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permianville 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 Permianville Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permianville Royalty has no effect on the direction of PetroShale i.e., PetroShale and Permianville Royalty go up and down completely randomly.

Pair Corralation between PetroShale and Permianville Royalty

Assuming the 90 days horizon PetroShale is expected to generate 0.89 times more return on investment than Permianville Royalty. However, PetroShale is 1.12 times less risky than Permianville Royalty. It trades about -0.01 of its potential returns per unit of risk. Permianville Royalty Trust is currently generating about -0.02 per unit of risk. If you would invest  39.00  in PetroShale on September 26, 2024 and sell it today you would lose (11.00) from holding PetroShale or give up 28.21% of portfolio value over 90 days.

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

PetroShale  vs.  Permianville Royalty Trust

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.

Permianville Royalty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Permianville Royalty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with PetroShale and Permianville Royalty

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

The idea behind PetroShale and Permianville Royalty Trust 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.

Check out your portfolio center.

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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.