Correlation Between Diversified Energy and Baker Hughes
Can any of the company-specific risk be diversified away by investing in both Diversified Energy and Baker Hughes 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 Diversified Energy and Baker Hughes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Diversified Energy and Baker Hughes Co, you can compare the effects of market volatilities on Diversified Energy and Baker Hughes 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 Diversified Energy with a short position of Baker Hughes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diversified Energy and Baker Hughes.
Diversification Opportunities for Diversified Energy and Baker Hughes
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Diversified and Baker is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Energy and Baker Hughes Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baker Hughes and Diversified 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 Diversified Energy are associated (or correlated) with Baker Hughes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baker Hughes has no effect on the direction of Diversified Energy i.e., Diversified Energy and Baker Hughes go up and down completely randomly.
Pair Corralation between Diversified Energy and Baker Hughes
Assuming the 90 days trading horizon Diversified Energy is expected to generate 1.85 times more return on investment than Baker Hughes. However, Diversified Energy is 1.85 times more volatile than Baker Hughes Co. It trades about -0.05 of its potential returns per unit of risk. Baker Hughes Co is currently generating about -0.31 per unit of risk. If you would invest 127,071 in Diversified Energy on September 23, 2024 and sell it today you would lose (5,071) from holding Diversified Energy or give up 3.99% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Diversified Energy vs. Baker Hughes Co
Performance |
Timeline |
Diversified Energy |
Baker Hughes |
Diversified Energy and Baker Hughes Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Diversified Energy and Baker Hughes
The main advantage of trading using opposite Diversified Energy and Baker Hughes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diversified Energy position performs unexpectedly, Baker Hughes 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 Baker Hughes will offset losses from the drop in Baker Hughes' long position.Diversified Energy vs. Zoom Video Communications | Diversified Energy vs. Enbridge | Diversified Energy vs. Endo International PLC | Diversified Energy vs. Quantum Blockchain Technologies |
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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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