Correlation Between Sabine Royalty and Sitio Royalties

Can any of the company-specific risk be diversified away by investing in both Sabine Royalty and Sitio Royalties 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 Sitio Royalties 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 Sitio Royalties Corp, you can compare the effects of market volatilities on Sabine Royalty and Sitio Royalties 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 Sitio Royalties. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sabine Royalty and Sitio Royalties.

Diversification Opportunities for Sabine Royalty and Sitio Royalties

0.74

Correlation Coefficient

Sabine Royalty  Sitio Royalties

Poor diversification

The 3 months correlation between Sabine and Sitio is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Sabine Royalty Trust and Sitio Royalties Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sitio Royalties Corp 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 Sitio Royalties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sitio Royalties Corp has no effect on the direction of Sabine Royalty i.e., Sabine Royalty and Sitio Royalties go up and down completely randomly.

Pair Corralation between Sabine Royalty and Sitio Royalties

Considering the 90-day investment horizon Sabine Royalty is expected to generate 1.98 times less return on investment than Sitio Royalties. But when comparing it to its historical volatility, Sabine Royalty Trust is 2.02 times less risky than Sitio Royalties. It trades about 0.13 of its potential returns per unit of risk. Sitio Royalties Corp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,069  in Sitio Royalties Corp on September 5, 2024 and sell it today you would earn a total of  319.00  from holding Sitio Royalties Corp or generate 15.42% 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.  Sitio Royalties Corp

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.

Sitio Royalties Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sitio Royalties Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Sitio Royalties reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sabine Royalty and Sitio Royalties

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

The idea behind Sabine Royalty Trust and Sitio Royalties Corp 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.