Correlation Between CES Energy and Source Energy

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

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

Diversification Opportunities for CES Energy and Source Energy

0.82

Correlation Coefficient

CES Energy  Source Energy

Very poor diversification

The 3 months correlation between CES and Source is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding CES Energy Solutions and Source Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Source Energy Services and CES Energy 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 CES Energy Solutions are associated (or correlated) with Source Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Source Energy Services has no effect on the direction of CES Energy i.e., CES Energy and Source Energy go up and down completely randomly.

Pair Corralation between CES Energy and Source Energy

Assuming the 90 days trading horizon CES Energy Solutions is expected to generate 0.78 times more return on investment than Source Energy. However, CES Energy Solutions is 1.29 times less risky than Source Energy. It trades about -0.25 of its potential returns per unit of risk. Source Energy Services is currently generating about -0.31 per unit of risk. If you would invest  856.00  in CES Energy Solutions on December 4, 2024 and sell it today you would lose (100.00) from holding CES Energy Solutions or give up 11.68% of portfolio value over 90 days.

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

CES Energy Solutions  vs.  Source Energy Services

CES Energy Solutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days CES Energy Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Source Energy Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Source Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with CES Energy and Source Energy

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

The idea behind CES Energy Solutions and Source 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.

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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.