Correlation Between Reconnaissance Energy and Permian Resources

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

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

Diversification Opportunities for Reconnaissance Energy and Permian Resources

0.25

Correlation Coefficient

Reconnaissance Energy  Permian Resources

Modest diversification

The 3 months correlation between Reconnaissance and Permian is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Reconnaissance Energy Africa and Permian Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permian Resources and Reconnaissance Energy 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 Reconnaissance Energy Africa are associated (or correlated) with Permian Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permian Resources has no effect on the direction of Reconnaissance Energy i.e., Reconnaissance Energy and Permian Resources go up and down completely randomly.

Pair Corralation between Reconnaissance Energy and Permian Resources

Assuming the 90 days horizon Reconnaissance Energy Africa is expected to generate 2.59 times more return on investment than Permian Resources. However, Reconnaissance Energy is 2.59 times more volatile than Permian Resources. It trades about 0.09 of its potential returns per unit of risk. Permian Resources is currently generating about -0.18 per unit of risk. If you would invest  68.00  in Reconnaissance Energy Africa on September 19, 2024 and sell it today you would earn a total of  5.00  from holding Reconnaissance Energy Africa or generate 7.35% return on investment over 90 days.

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

Reconnaissance Energy Africa  vs.  Permian Resources

Reconnaissance Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Reconnaissance Energy Africa are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Reconnaissance Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Permian Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Permian Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Reconnaissance Energy and Permian Resources

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

The idea behind Reconnaissance Energy Africa and Permian Resources 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.