Correlation Between SandRidge Energy and PrimeEnergy

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

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

Diversification Opportunities for SandRidge Energy and PrimeEnergy

-0.39

Correlation Coefficient

SandRidge Energy  PrimeEnergy

Very good diversification

The 3 months correlation between SandRidge and PrimeEnergy is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding SandRidge Energy and PrimeEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PrimeEnergy and SandRidge 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 SandRidge Energy are associated (or correlated) with PrimeEnergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PrimeEnergy has no effect on the direction of SandRidge Energy i.e., SandRidge Energy and PrimeEnergy go up and down completely randomly.

Pair Corralation between SandRidge Energy and PrimeEnergy

Allowing for the 90-day total investment horizon SandRidge Energy is expected to under-perform the PrimeEnergy. But the stock apears to be less risky and, when comparing its historical volatility, SandRidge Energy is 1.63 times less risky than PrimeEnergy. The stock trades about -0.07 of its potential returns per unit of risk. The PrimeEnergy is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  12,850  in PrimeEnergy on September 2, 2024 and sell it today you would earn a total of  7,255  from holding PrimeEnergy or generate 56.46% return on investment over 90 days.

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

SandRidge Energy  vs.  PrimeEnergy

SandRidge Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SandRidge Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

PrimeEnergy

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PrimeEnergy are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, PrimeEnergy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SandRidge Energy and PrimeEnergy

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

The idea behind SandRidge Energy and PrimeEnergy 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.