Correlation Between Sabine Royalty and Vital Energy

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

Diversification Opportunities for Sabine Royalty and Vital Energy

0.61

Correlation Coefficient

Sabine Royalty  Vital Energy

Poor diversification

The 3 months correlation between Sabine and Vital is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Sabine Royalty Trust and Vital Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vital Energy 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 Vital Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vital Energy has no effect on the direction of Sabine Royalty i.e., Sabine Royalty and Vital Energy go up and down completely randomly.

Pair Corralation between Sabine Royalty and Vital Energy

Considering the 90-day investment horizon Sabine Royalty Trust is expected to generate 0.69 times more return on investment than Vital Energy. However, Sabine Royalty Trust is 1.45 times less risky than Vital Energy. It trades about 0.12 of its potential returns per unit of risk. Vital Energy is currently generating about -0.16 per unit of risk. If you would invest  6,279  in Sabine Royalty Trust on September 26, 2024 and sell it today you would earn a total of  303.00  from holding Sabine Royalty Trust or generate 4.83% 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.  Vital Energy

Sabine Royalty Trust

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sabine Royalty Trust are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, Sabine Royalty reported solid returns over the last few months and may actually be approaching a breakup point.

Vital Energy

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vital Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting essential indicators, Vital Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sabine Royalty and Vital Energy

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

The idea behind Sabine Royalty Trust and Vital 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.

Check out your portfolio center.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.