Correlation Between Diversified Royalty and Paramount Resources

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

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

Diversification Opportunities for Diversified Royalty and Paramount Resources

0.62

Correlation Coefficient

Diversified Royalty  Paramount Resources

Poor diversification

The 3 months correlation between Diversified and Paramount is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Royalty Corp and Paramount Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paramount Resources and Diversified 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 Diversified Royalty Corp are associated (or correlated) with Paramount Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paramount Resources has no effect on the direction of Diversified Royalty i.e., Diversified Royalty and Paramount Resources go up and down completely randomly.

Pair Corralation between Diversified Royalty and Paramount Resources

Assuming the 90 days trading horizon Diversified Royalty is expected to generate 1.45 times less return on investment than Paramount Resources. But when comparing it to its historical volatility, Diversified Royalty Corp is 1.38 times less risky than Paramount Resources. It trades about 0.21 of its potential returns per unit of risk. Paramount Resources is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,653  in Paramount Resources on April 22, 2025 and sell it today you would earn a total of  452.00  from holding Paramount Resources or generate 27.34% return on investment over 90 days.

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

Diversified Royalty Corp  vs.  Paramount Resources

Diversified Royalty Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Royalty Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Diversified Royalty displayed solid returns over the last few months and may actually be approaching a breakup point.

Paramount Resources

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Paramount Resources are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Paramount Resources displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diversified Royalty and Paramount Resources

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

The idea behind Diversified Royalty Corp and Paramount Resources 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.