Correlation Between Permian Basin and Berkshire Hathaway

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

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

Diversification Opportunities for Permian Basin and Berkshire Hathaway

-0.63

Correlation Coefficient

Permian Basin  Berkshire Hathaway

Excellent diversification

The 3 months correlation between Permian and Berkshire is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Permian Basin Royalty and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway and Permian Basin 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 Basin Royalty are associated (or correlated) with Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of Permian Basin i.e., Permian Basin and Berkshire Hathaway go up and down completely randomly.

Pair Corralation between Permian Basin and Berkshire Hathaway

Considering the 90-day investment horizon Permian Basin Royalty is expected to generate 2.81 times more return on investment than Berkshire Hathaway. However, Permian Basin is 2.81 times more volatile than Berkshire Hathaway. It trades about 0.02 of its potential returns per unit of risk. Berkshire Hathaway is currently generating about 0.04 per unit of risk. If you would invest  1,213  in Permian Basin Royalty on January 17, 2024 and sell it today you would lose (16.00) from holding Permian Basin Royalty or give up 1.32% of portfolio value over 90 days.

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

Permian Basin Royalty  vs.  Berkshire Hathaway

Permian Basin Royalty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Permian Basin Royalty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Berkshire Hathaway

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Berkshire Hathaway may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Permian Basin and Berkshire Hathaway

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

The idea behind Permian Basin Royalty and Berkshire Hathaway 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.