Correlation Between North American and Ranger Energy

Can any of the company-specific risk be diversified away by investing in both North American and Ranger 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 North American and Ranger Energy 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 Ranger Energy Services, you can compare the effects of market volatilities on North American and Ranger 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 North American with a short position of Ranger Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Ranger Energy.

Diversification Opportunities for North American and Ranger Energy

0.74

Correlation Coefficient

North American  Ranger Energy

Poor diversification

The 3 months correlation between North and Ranger is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Ranger Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ranger Energy Services 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 Ranger Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ranger Energy Services has no effect on the direction of North American i.e., North American and Ranger Energy go up and down completely randomly.

Pair Corralation between North American and Ranger Energy

Considering the 90-day investment horizon North American Construction is expected to generate 0.82 times more return on investment than Ranger Energy. However, North American Construction is 1.23 times less risky than Ranger Energy. It trades about 0.11 of its potential returns per unit of risk. Ranger Energy Services is currently generating about -0.19 per unit of risk. If you would invest  1,963  in North American Construction on September 20, 2024 and sell it today you would earn a total of  83.00  from holding North American Construction or generate 4.23% return on investment over 90 days.

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

North American Construction  vs.  Ranger Energy Services

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.

Ranger Energy Services

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ranger Energy Services are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, Ranger Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and Ranger Energy

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

The idea behind North American Construction and Ranger Energy Services 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.