Correlation Between First State and Nabors Energy

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

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

Diversification Opportunities for First State and Nabors Energy

0.75

Correlation Coefficient

First State  Nabors Energy

Poor diversification

The 3 months correlation between First and Nabors is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding First State Financial and Nabors Energy Transition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nabors Energy Transition and First State 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 First State Financial are associated (or correlated) with Nabors Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nabors Energy Transition has no effect on the direction of First State i.e., First State and Nabors Energy go up and down completely randomly.

Pair Corralation between First State and Nabors Energy

Given the investment horizon of 90 days First State Financial is expected to generate 49.05 times more return on investment than Nabors Energy. However, First State is 49.05 times more volatile than Nabors Energy Transition. It trades about 0.1 of its potential returns per unit of risk. Nabors Energy Transition is currently generating about 0.08 per unit of risk. If you would invest  1.70  in First State Financial on October 5, 2024 and sell it today you would earn a total of  2.77  from holding First State Financial or generate 162.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.11%
Values	Daily Returns

First State Financial  vs.  Nabors Energy Transition

First State Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First State Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, First State is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Nabors Energy Transition

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nabors Energy Transition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Nabors Energy is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First State and Nabors Energy

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

The idea behind First State Financial and Nabors Energy Transition 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.