Correlation Between PrimeEnergy and Vital Energy

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

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

Diversification Opportunities for PrimeEnergy and Vital Energy

0.7

Correlation Coefficient

PrimeEnergy  Vital Energy

Poor diversification

The 3 months correlation between PrimeEnergy and Vital is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding PrimeEnergy and Vital Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vital Energy and PrimeEnergy 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 PrimeEnergy 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 PrimeEnergy i.e., PrimeEnergy and Vital Energy go up and down completely randomly.

Pair Corralation between PrimeEnergy and Vital Energy

Given the investment horizon of 90 days PrimeEnergy is expected to generate 0.89 times more return on investment than Vital Energy. However, PrimeEnergy is 1.12 times less risky than Vital Energy. It trades about 0.07 of its potential returns per unit of risk. Vital Energy is currently generating about -0.02 per unit of risk. If you would invest  8,668  in PrimeEnergy on September 23, 2024 and sell it today you would earn a total of  8,576  from holding PrimeEnergy or generate 98.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

PrimeEnergy  vs.  Vital Energy

PrimeEnergy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PrimeEnergy are ranked lower than 6 (%) 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.

Vital Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vital Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Vital Energy is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with PrimeEnergy and Vital Energy

The main advantage of trading using opposite PrimeEnergy and Vital Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PrimeEnergy 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 PrimeEnergy 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.