Correlation Between Energy Services and Construction Partners

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

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

Diversification Opportunities for Energy Services and Construction Partners

0.9

Correlation Coefficient

Energy Services  Construction Partners

Almost no diversification

The 3 months correlation between Energy and Construction is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Energy Services and Construction Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Construction Partners and Energy Services 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 Energy Services are associated (or correlated) with Construction Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Construction Partners has no effect on the direction of Energy Services i.e., Energy Services and Construction Partners go up and down completely randomly.

Pair Corralation between Energy Services and Construction Partners

Given the investment horizon of 90 days Energy Services is expected to generate 2.84 times more return on investment than Construction Partners. However, Energy Services is 2.84 times more volatile than Construction Partners. It trades about -0.07 of its potential returns per unit of risk. Construction Partners is currently generating about -0.27 per unit of risk. If you would invest  1,436  in Energy Services on October 4, 2024 and sell it today you would lose (174.00) from holding Energy Services or give up 12.12% of portfolio value over 90 days.

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

Energy Services  vs.  Construction Partners

Energy Services

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Services are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Energy Services sustained solid returns over the last few months and may actually be approaching a breakup point.

Construction Partners

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Construction Partners are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Construction Partners exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Energy Services and Construction Partners

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

The idea behind Energy Services and Construction Partners 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.