Correlation Between Braskem SA and Select Energy

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

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

Diversification Opportunities for Braskem SA and Select Energy

-0.74

Correlation Coefficient

Braskem SA  Select Energy

Pay attention - limited upside

The 3 months correlation between Braskem and Select is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Braskem SA Class and Select Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Energy Services and Braskem SA 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 Braskem SA Class are associated (or correlated) with Select Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Energy Services has no effect on the direction of Braskem SA i.e., Braskem SA and Select Energy go up and down completely randomly.

Pair Corralation between Braskem SA and Select Energy

Considering the 90-day investment horizon Braskem SA Class is expected to under-perform the Select Energy. But the stock apears to be less risky and, when comparing its historical volatility, Braskem SA Class is 1.08 times less risky than Select Energy. The stock trades about -0.11 of its potential returns per unit of risk. The Select Energy Services is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,034  in Select Energy Services on September 24, 2024 and sell it today you would earn a total of  218.00  from holding Select Energy Services or generate 21.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.21%
Values	Daily Returns

Braskem SA Class  vs.  Select Energy Services

Braskem SA Class

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Braskem SA Class has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Select Energy Services

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Select Energy Services are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Select Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Braskem SA and Select Energy

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

The idea behind Braskem SA Class and Select 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.