Correlation Between AKITA Drilling and STEP Energy

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

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

Diversification Opportunities for AKITA Drilling and STEP Energy

0.33

Correlation Coefficient

AKITA Drilling  STEP Energy

Weak diversification

The 3 months correlation between AKITA and STEP is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding AKITA Drilling and STEP Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STEP Energy Services and AKITA Drilling 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 AKITA Drilling are associated (or correlated) with STEP Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STEP Energy Services has no effect on the direction of AKITA Drilling i.e., AKITA Drilling and STEP Energy go up and down completely randomly.

Pair Corralation between AKITA Drilling and STEP Energy

Assuming the 90 days trading horizon AKITA Drilling is expected to generate 1.32 times more return on investment than STEP Energy. However, AKITA Drilling is 1.32 times more volatile than STEP Energy Services. It trades about 0.12 of its potential returns per unit of risk. STEP Energy Services is currently generating about 0.04 per unit of risk. If you would invest  156.00  in AKITA Drilling on December 29, 2024 and sell it today you would earn a total of  30.00  from holding AKITA Drilling or generate 19.23% return on investment over 90 days.

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

AKITA Drilling  vs.  STEP Energy Services

AKITA Drilling

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AKITA Drilling are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, AKITA Drilling unveiled solid returns over the last few months and may actually be approaching a breakup point.

STEP Energy Services

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in STEP Energy Services are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, STEP Energy is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with AKITA Drilling and STEP Energy

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

The idea behind AKITA Drilling and STEP Energy Services 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.