Correlation Between Baker Hughes and Archrock

Can any of the company-specific risk be diversified away by investing in both Baker Hughes and Archrock 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 Archrock 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 Archrock, you can compare the effects of market volatilities on Baker Hughes and Archrock 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 Archrock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baker Hughes and Archrock.

Diversification Opportunities for Baker Hughes and Archrock

0.87

Correlation Coefficient

Baker Hughes  Archrock

Very poor diversification

The 3 months correlation between Baker and Archrock is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Baker Hughes Co and Archrock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Archrock 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 Archrock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Archrock has no effect on the direction of Baker Hughes i.e., Baker Hughes and Archrock go up and down completely randomly.

Pair Corralation between Baker Hughes and Archrock

Considering the 90-day investment horizon Baker Hughes Co is expected to under-perform the Archrock. But the stock apears to be less risky and, when comparing its historical volatility, Baker Hughes Co is 1.74 times less risky than Archrock. The stock trades about -0.31 of its potential returns per unit of risk. The Archrock is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  2,586  in Archrock on September 23, 2024 and sell it today you would lose (131.00) from holding Archrock or give up 5.07% of portfolio value over 90 days.

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

Baker Hughes Co  vs.  Archrock

Baker Hughes

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baker Hughes Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain forward-looking signals, Baker Hughes may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Archrock

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Archrock are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Archrock exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Baker Hughes and Archrock

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

The idea behind Baker Hughes Co and Archrock 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.