Correlation Between KNOT Offshore and USA Compression

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

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

Diversification Opportunities for KNOT Offshore and USA Compression

0.02

Correlation Coefficient

KNOT Offshore  USA Compression

Significant diversification

The 3 months correlation between KNOT and USA is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding KNOT Offshore Partners and USA Compression Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on USA Compression Partners and KNOT Offshore 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 KNOT Offshore Partners are associated (or correlated) with USA Compression. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of USA Compression Partners has no effect on the direction of KNOT Offshore i.e., KNOT Offshore and USA Compression go up and down completely randomly.

Pair Corralation between KNOT Offshore and USA Compression

Given the investment horizon of 90 days KNOT Offshore Partners is expected to generate 1.2 times more return on investment than USA Compression. However, KNOT Offshore is 1.2 times more volatile than USA Compression Partners. It trades about 0.15 of its potential returns per unit of risk. USA Compression Partners is currently generating about 0.17 per unit of risk. If you would invest  535.00  in KNOT Offshore Partners on December 27, 2024 and sell it today you would earn a total of  139.00  from holding KNOT Offshore Partners or generate 25.98% return on investment over 90 days.

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

KNOT Offshore Partners  vs.  USA Compression Partners

KNOT Offshore Partners

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KNOT Offshore Partners are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, KNOT Offshore reported solid returns over the last few months and may actually be approaching a breakup point.

USA Compression Partners

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in USA Compression Partners are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, USA Compression exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KNOT Offshore and USA Compression

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

The idea behind KNOT Offshore Partners and USA Compression 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.