Correlation Between Permianville Royalty and Devon Energy

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

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

Diversification Opportunities for Permianville Royalty and Devon Energy

0.79

Correlation Coefficient

Permianville Royalty  Devon Energy

Poor diversification

The 3 months correlation between Permianville and Devon is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Permianville Royalty Trust and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon Energy and Permianville Royalty 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 Permianville Royalty Trust are associated (or correlated) with Devon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Devon Energy has no effect on the direction of Permianville Royalty i.e., Permianville Royalty and Devon Energy go up and down completely randomly.

Pair Corralation between Permianville Royalty and Devon Energy

Considering the 90-day investment horizon Permianville Royalty Trust is expected to generate 1.15 times more return on investment than Devon Energy. However, Permianville Royalty is 1.15 times more volatile than Devon Energy. It trades about -0.32 of its potential returns per unit of risk. Devon Energy is currently generating about -0.59 per unit of risk. If you would invest  154.00  in Permianville Royalty Trust on September 26, 2024 and sell it today you would lose (18.00) from holding Permianville Royalty Trust or give up 11.69% of portfolio value over 90 days.

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

Permianville Royalty Trust  vs.  Devon Energy

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.

Devon Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Devon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Permianville Royalty and Devon Energy

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

The idea behind Permianville Royalty Trust and Devon Energy 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.