Correlation Between Trophy Resources and MDM Permian

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

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

Diversification Opportunities for Trophy Resources and MDM Permian

0.3

Correlation Coefficient

Trophy Resources  MDM Permian

Weak diversification

The 3 months correlation between Trophy and MDM is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Trophy Resources and MDM Permian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MDM Permian and Trophy Resources 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 Trophy Resources are associated (or correlated) with MDM Permian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MDM Permian has no effect on the direction of Trophy Resources i.e., Trophy Resources and MDM Permian go up and down completely randomly.

Pair Corralation between Trophy Resources and MDM Permian

If you would invest  1.10  in MDM Permian on September 15, 2024 and sell it today you would lose (0.11) from holding MDM Permian or give up 10.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	1.56%
Values	Daily Returns

Trophy Resources  vs.  MDM Permian

Trophy Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Trophy Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Trophy Resources is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

MDM Permian

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MDM Permian are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile primary indicators, MDM Permian reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Trophy Resources and MDM Permian

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

The idea behind Trophy Resources and MDM Permian 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.