Correlation Between Liberty Oilfield and Dawson Geophysical

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

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

Diversification Opportunities for Liberty Oilfield and Dawson Geophysical

-0.01

Correlation Coefficient

Liberty Oilfield  Dawson Geophysical

Good diversification

The 3 months correlation between Liberty and Dawson is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Oilfield Services and Dawson Geophysical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dawson Geophysical and Liberty Oilfield 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 Liberty Oilfield Services are associated (or correlated) with Dawson Geophysical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dawson Geophysical has no effect on the direction of Liberty Oilfield i.e., Liberty Oilfield and Dawson Geophysical go up and down completely randomly.

Pair Corralation between Liberty Oilfield and Dawson Geophysical

Given the investment horizon of 90 days Liberty Oilfield is expected to generate 1.58 times less return on investment than Dawson Geophysical. But when comparing it to its historical volatility, Liberty Oilfield Services is 2.26 times less risky than Dawson Geophysical. It trades about 0.03 of its potential returns per unit of risk. Dawson Geophysical is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  169.00  in Dawson Geophysical on September 24, 2024 and sell it today you would lose (28.00) from holding Dawson Geophysical or give up 16.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.4%
Values	Daily Returns

Liberty Oilfield Services  vs.  Dawson Geophysical

Liberty Oilfield Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liberty Oilfield Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Dawson Geophysical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dawson Geophysical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Dawson Geophysical is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Liberty Oilfield and Dawson Geophysical

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

The idea behind Liberty Oilfield Services and Dawson Geophysical 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.