Correlation Between Now and KLX Energy

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

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

Diversification Opportunities for Now and KLX Energy

0.47

Correlation Coefficient

Now  KLX Energy

Very weak diversification

The 3 months correlation between Now and KLX is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Now Inc and KLX Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLX Energy Services and Now 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 Now Inc are associated (or correlated) with KLX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KLX Energy Services has no effect on the direction of Now i.e., Now and KLX Energy go up and down completely randomly.

Pair Corralation between Now and KLX Energy

Given the investment horizon of 90 days Now Inc is expected to generate 0.43 times more return on investment than KLX Energy. However, Now Inc is 2.35 times less risky than KLX Energy. It trades about -0.36 of its potential returns per unit of risk. KLX Energy Services is currently generating about -0.34 per unit of risk. If you would invest  1,465  in Now Inc on September 21, 2024 and sell it today you would lose (176.00) from holding Now Inc or give up 12.01% of portfolio value over 90 days.

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

Now Inc  vs.  KLX Energy Services

Now Inc

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Now Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Now is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

KLX Energy Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KLX Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Now and KLX Energy

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

The idea behind Now Inc and KLX 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.