Correlation Between Mesa Royalty and Granite Falls

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

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

Diversification Opportunities for Mesa Royalty and Granite Falls

0.35

Correlation Coefficient

Mesa Royalty  Granite Falls

Weak diversification

The 3 months correlation between Mesa and Granite is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Mesa Royalty Trust and Granite Falls Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Granite Falls Energy and Mesa 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 Mesa Royalty Trust are associated (or correlated) with Granite Falls. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Granite Falls Energy has no effect on the direction of Mesa Royalty i.e., Mesa Royalty and Granite Falls go up and down completely randomly.

Pair Corralation between Mesa Royalty and Granite Falls

Considering the 90-day investment horizon Mesa Royalty Trust is expected to under-perform the Granite Falls. In addition to that, Mesa Royalty is 8.88 times more volatile than Granite Falls Energy. It trades about -0.1 of its total potential returns per unit of risk. Granite Falls Energy is currently generating about -0.14 per unit of volatility. If you would invest  360,000  in Granite Falls Energy on March 14, 2024 and sell it today you would lose (22,500) from holding Granite Falls Energy or give up 6.25% of portfolio value over 90 days.

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

Mesa Royalty Trust  vs.  Granite Falls Energy

Mesa Royalty Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mesa Royalty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in July 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Granite Falls Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Granite Falls Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Granite Falls is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mesa Royalty and Granite Falls

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

The idea behind Mesa Royalty Trust and Granite Falls 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.