Correlation Between Archrock and Natural Gas

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

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

Diversification Opportunities for Archrock and Natural Gas

0.56

Correlation Coefficient

Archrock  Natural Gas

Very weak diversification

The 3 months correlation between Archrock and Natural is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Archrock and Natural Gas Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Gas Services and Archrock 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 Archrock are associated (or correlated) with Natural Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Gas Services has no effect on the direction of Archrock i.e., Archrock and Natural Gas go up and down completely randomly.

Pair Corralation between Archrock and Natural Gas

Given the investment horizon of 90 days Archrock is expected to generate 1.04 times more return on investment than Natural Gas. However, Archrock is 1.04 times more volatile than Natural Gas Services. It trades about 0.04 of its potential returns per unit of risk. Natural Gas Services is currently generating about -0.05 per unit of risk. If you would invest  2,545  in Archrock on November 28, 2024 and sell it today you would earn a total of  95.00  from holding Archrock or generate 3.73% return on investment over 90 days.

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

Archrock  vs.  Natural Gas Services

Archrock

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Archrock are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Archrock may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Natural Gas Services

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Archrock and Natural Gas

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

The idea behind Archrock and Natural Gas 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.

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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .