Correlation Between Archrock and Cactus

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

By analyzing existing cross correlation between Archrock and Cactus Inc, you can compare the effects of market volatilities on Archrock and Cactus 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 Cactus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Archrock and Cactus.

Diversification Opportunities for Archrock and Cactus

0.81

Correlation Coefficient

Archrock  Cactus

Very poor diversification

The 3 months correlation between Archrock and Cactus is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Archrock and Cactus Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cactus Inc 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 Cactus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cactus Inc has no effect on the direction of Archrock i.e., Archrock and Cactus go up and down completely randomly.

Pair Corralation between Archrock and Cactus

Given the investment horizon of 90 days Archrock is expected to generate 0.93 times more return on investment than Cactus. However, Archrock is 1.07 times less risky than Cactus. It trades about 0.12 of its potential returns per unit of risk. Cactus Inc is currently generating about 0.08 per unit of risk. If you would invest  1,397  in Archrock on September 15, 2024 and sell it today you would earn a total of  1,202  from holding Archrock or generate 86.04% return on investment over 90 days.

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

Archrock  vs.  Cactus Inc

Archrock

Risk-Adjusted Performance

16 of 100

Solid

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

Cactus Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cactus Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical indicators, Cactus may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Archrock and Cactus

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

The idea behind Archrock and Cactus Inc 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..