Correlation Between Royalty Management and Delek Drilling

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

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

Diversification Opportunities for Royalty Management and Delek Drilling

0.67

Correlation Coefficient

Royalty Management  Delek Drilling

Poor diversification

The 3 months correlation between Royalty and Delek is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Royalty Management Holding and Delek Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Delek Drilling and Royalty Management 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 Royalty Management Holding are associated (or correlated) with Delek Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Delek Drilling has no effect on the direction of Royalty Management i.e., Royalty Management and Delek Drilling go up and down completely randomly.

Pair Corralation between Royalty Management and Delek Drilling

Given the investment horizon of 90 days Royalty Management Holding is expected to generate 1.78 times more return on investment than Delek Drilling. However, Royalty Management is 1.78 times more volatile than Delek Drilling . It trades about 0.11 of its potential returns per unit of risk. Delek Drilling is currently generating about 0.18 per unit of risk. If you would invest  93.00  in Royalty Management Holding on September 24, 2024 and sell it today you would earn a total of  25.00  from holding Royalty Management Holding or generate 26.88% return on investment over 90 days.

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

Royalty Management Holding  vs.  Delek Drilling

Royalty Management

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royalty Management Holding are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Royalty Management displayed solid returns over the last few months and may actually be approaching a breakup point.

Delek Drilling

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Delek Drilling are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Delek Drilling reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royalty Management and Delek Drilling

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

The idea behind Royalty Management Holding and Delek Drilling 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.