Correlation Between North American and ProPetro Holding

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

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

Diversification Opportunities for North American and ProPetro Holding

0.44

Correlation Coefficient

North American  ProPetro Holding

Very weak diversification

The 3 months correlation between North and ProPetro is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and ProPetro Holding Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProPetro Holding Corp and North American 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 North American Construction are associated (or correlated) with ProPetro Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProPetro Holding Corp has no effect on the direction of North American i.e., North American and ProPetro Holding go up and down completely randomly.

Pair Corralation between North American and ProPetro Holding

Considering the 90-day investment horizon North American is expected to generate 3.63 times less return on investment than ProPetro Holding. But when comparing it to its historical volatility, North American Construction is 2.53 times less risky than ProPetro Holding. It trades about 0.11 of its potential returns per unit of risk. ProPetro Holding Corp is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  777.00  in ProPetro Holding Corp on September 20, 2024 and sell it today you would earn a total of  118.00  from holding ProPetro Holding Corp or generate 15.19% return on investment over 90 days.

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

North American Construction  vs.  ProPetro Holding Corp

North American Const

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, North American may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ProPetro Holding Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ProPetro Holding Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, ProPetro Holding reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and ProPetro Holding

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

The idea behind North American Construction and ProPetro Holding Corp 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.