Correlation Between Kimbell Royalty and Occidental Petroleum

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

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

Diversification Opportunities for Kimbell Royalty and Occidental Petroleum

0.86

Correlation Coefficient

Kimbell Royalty  Occidental Petroleum

Very poor diversification

The 3 months correlation between Kimbell and Occidental is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Kimbell Royalty Partners and Occidental Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Occidental Petroleum and Kimbell 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 Kimbell Royalty Partners are associated (or correlated) with Occidental Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Occidental Petroleum has no effect on the direction of Kimbell Royalty i.e., Kimbell Royalty and Occidental Petroleum go up and down completely randomly.

Pair Corralation between Kimbell Royalty and Occidental Petroleum

Considering the 90-day investment horizon Kimbell Royalty Partners is expected to generate 0.74 times more return on investment than Occidental Petroleum. However, Kimbell Royalty Partners is 1.36 times less risky than Occidental Petroleum. It trades about -0.15 of its potential returns per unit of risk. Occidental Petroleum is currently generating about -0.15 per unit of risk. If you would invest  1,547  in Kimbell Royalty Partners on January 13, 2025 and sell it today you would lose (340.00) from holding Kimbell Royalty Partners or give up 21.98% of portfolio value over 90 days.

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

Kimbell Royalty Partners  vs.  Occidental Petroleum

Kimbell Royalty Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kimbell Royalty Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in May 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Occidental Petroleum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Occidental Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Kimbell Royalty and Occidental Petroleum

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

The idea behind Kimbell Royalty Partners and Occidental Petroleum 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.