Correlation Between Baker Hughes and Valaris

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

Diversification Opportunities for Baker Hughes and Valaris

0.5

Correlation Coefficient

Baker Hughes  Valaris

Very weak diversification

The 3 months correlation between Baker and Valaris is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Baker Hughes Co and Valaris in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valaris 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 Valaris. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valaris has no effect on the direction of Baker Hughes i.e., Baker Hughes and Valaris go up and down completely randomly.

Pair Corralation between Baker Hughes and Valaris

Considering the 90-day investment horizon Baker Hughes Co is expected to generate 0.66 times more return on investment than Valaris. However, Baker Hughes Co is 1.51 times less risky than Valaris. It trades about 0.07 of its potential returns per unit of risk. Valaris is currently generating about -0.02 per unit of risk. If you would invest  4,074  in Baker Hughes Co on December 28, 2024 and sell it today you would earn a total of  289.00  from holding Baker Hughes Co or generate 7.09% return on investment over 90 days.

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

Baker Hughes Co  vs.  Valaris

Baker Hughes

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Baker Hughes Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward-looking signals, Baker Hughes may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Valaris

Risk-Adjusted Performance

Very Weak

Over the last 90 days Valaris has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Valaris is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Baker Hughes and Valaris

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

The idea behind Baker Hughes Co and Valaris 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.