Correlation Between Baker Hughes and Tenaris SA

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

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

Diversification Opportunities for Baker Hughes and Tenaris SA

0.6

Correlation Coefficient

Baker Hughes  Tenaris SA

Poor diversification

The 3 months correlation between Baker and Tenaris is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Baker Hughes Co and Tenaris SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tenaris SA and Baker Hughes 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 Baker Hughes Co are associated (or correlated) with Tenaris SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tenaris SA has no effect on the direction of Baker Hughes i.e., Baker Hughes and Tenaris SA go up and down completely randomly.

Pair Corralation between Baker Hughes and Tenaris SA

Assuming the 90 days horizon Baker Hughes Co is expected to generate 1.44 times more return on investment than Tenaris SA. However, Baker Hughes is 1.44 times more volatile than Tenaris SA. It trades about 0.03 of its potential returns per unit of risk. Tenaris SA is currently generating about -0.01 per unit of risk. If you would invest  4,086  in Baker Hughes Co on November 29, 2024 and sell it today you would earn a total of  92.00  from holding Baker Hughes Co or generate 2.25% return on investment over 90 days.

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

Baker Hughes Co  vs.  Tenaris SA

Baker Hughes

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Baker Hughes Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Baker Hughes is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Tenaris SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tenaris SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Tenaris SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Baker Hughes and Tenaris SA

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

The idea behind Baker Hughes Co and Tenaris SA 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.