Correlation Between Permian Resources and Earthstone Energy

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

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

Diversification Opportunities for Permian Resources and Earthstone Energy

0.23

Correlation Coefficient

Permian Resources  Earthstone Energy

Modest diversification

The 3 months correlation between Permian and Earthstone is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Permian Resources and Earthstone Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Earthstone Energy and Permian 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 Permian Resources are associated (or correlated) with Earthstone Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Earthstone Energy has no effect on the direction of Permian Resources i.e., Permian Resources and Earthstone Energy go up and down completely randomly.

Pair Corralation between Permian Resources and Earthstone Energy

Allowing for the 90-day total investment horizon Permian Resources is expected to generate 1.18 times less return on investment than Earthstone Energy. But when comparing it to its historical volatility, Permian Resources is 1.22 times less risky than Earthstone Energy. It trades about 0.06 of its potential returns per unit of risk. Earthstone Energy is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,304  in Earthstone Energy on September 23, 2024 and sell it today you would earn a total of  228.00  from holding Earthstone Energy or generate 17.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	28.17%
Values	Daily Returns

Permian Resources  vs.  Earthstone Energy

Permian Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Permian Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Permian Resources is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Earthstone Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Permian Resources and Earthstone Energy

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

The idea behind Permian Resources and Earthstone 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.