Correlation Between Flotek Industries and Valaris

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

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

Diversification Opportunities for Flotek Industries and Valaris

0.5

Correlation Coefficient

Flotek Industries  Valaris

Very weak diversification

The 3 months correlation between Flotek and Valaris is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Flotek Industries and Valaris in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valaris and Flotek Industries 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 Flotek Industries are associated (or correlated) with Valaris. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valaris has no effect on the direction of Flotek Industries i.e., Flotek Industries and Valaris go up and down completely randomly.

Pair Corralation between Flotek Industries and Valaris

Considering the 90-day investment horizon Flotek Industries is expected to generate 1.5 times more return on investment than Valaris. However, Flotek Industries is 1.5 times more volatile than Valaris. It trades about -0.01 of its potential returns per unit of risk. Valaris is currently generating about -0.04 per unit of risk. If you would invest  925.00  in Flotek Industries on December 28, 2024 and sell it today you would lose (72.00) from holding Flotek Industries or give up 7.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Flotek Industries  vs.  Valaris

Flotek Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Flotek Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Flotek Industries is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Valaris

Risk-Adjusted Performance

Very Weak

Over the last 90 days Valaris has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Flotek Industries and Valaris

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

The idea behind Flotek Industries and Valaris 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.