Correlation Between North American and Solaris Oilfield

Can any of the company-specific risk be diversified away by investing in both North American and Solaris Oilfield 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 Solaris Oilfield 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 Solaris Oilfield Infrastructure, you can compare the effects of market volatilities on North American and Solaris Oilfield 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 Solaris Oilfield. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Solaris Oilfield.

Diversification Opportunities for North American and Solaris Oilfield

0.11

Correlation Coefficient

North American  Solaris Oilfield

Average diversification

The 3 months correlation between North and Solaris is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Solaris Oilfield Infrastructur in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solaris Oilfield Inf 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 Solaris Oilfield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solaris Oilfield Inf has no effect on the direction of North American i.e., North American and Solaris Oilfield go up and down completely randomly.

Pair Corralation between North American and Solaris Oilfield

Considering the 90-day investment horizon North American Construction is expected to generate 0.75 times more return on investment than Solaris Oilfield. However, North American Construction is 1.33 times less risky than Solaris Oilfield. It trades about 0.05 of its potential returns per unit of risk. Solaris Oilfield Infrastructure is currently generating about 0.03 per unit of risk. If you would invest  1,268  in North American Construction on September 19, 2024 and sell it today you would earn a total of  767.00  from holding North American Construction or generate 60.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	86.49%
Values	Daily Returns

North American Construction  vs.  Solaris Oilfield Infrastructur

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.

Solaris Oilfield Inf

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solaris Oilfield Infrastructure has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Solaris Oilfield is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with North American and Solaris Oilfield

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

The idea behind North American Construction and Solaris Oilfield Infrastructure 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.