Correlation Between Sabine Royalty and Kimbell Royalty

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

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

Diversification Opportunities for Sabine Royalty and Kimbell Royalty

0.71

Correlation Coefficient

Sabine Royalty  Kimbell Royalty

Poor diversification

The 3 months correlation between Sabine and Kimbell is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Sabine Royalty Trust and Kimbell Royalty Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kimbell Royalty Partners and Sabine 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 Sabine Royalty Trust are associated (or correlated) with Kimbell Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kimbell Royalty Partners has no effect on the direction of Sabine Royalty i.e., Sabine Royalty and Kimbell Royalty go up and down completely randomly.

Pair Corralation between Sabine Royalty and Kimbell Royalty

Considering the 90-day investment horizon Sabine Royalty is expected to generate 1.11 times less return on investment than Kimbell Royalty. But when comparing it to its historical volatility, Sabine Royalty Trust is 1.01 times less risky than Kimbell Royalty. It trades about 0.13 of its potential returns per unit of risk. Kimbell Royalty Partners is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,484  in Kimbell Royalty Partners on September 5, 2024 and sell it today you would earn a total of  130.00  from holding Kimbell Royalty Partners or generate 8.76% return on investment over 90 days.

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

Sabine Royalty Trust  vs.  Kimbell Royalty Partners

Sabine Royalty Trust

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sabine Royalty Trust are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, Sabine Royalty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Kimbell Royalty Partners

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kimbell Royalty Partners are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Kimbell Royalty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sabine Royalty and Kimbell Royalty

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

The idea behind Sabine Royalty Trust and Kimbell Royalty Partners 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.