Correlation Between PHX Energy and CES Energy

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

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

Diversification Opportunities for PHX Energy and CES Energy

0.52

Correlation Coefficient

PHX Energy  CES Energy

Very weak diversification

The 3 months correlation between PHX and CES is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding PHX Energy Services and CES Energy Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CES Energy Solutions and PHX Energy 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 PHX Energy Services are associated (or correlated) with CES Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CES Energy Solutions has no effect on the direction of PHX Energy i.e., PHX Energy and CES Energy go up and down completely randomly.

Pair Corralation between PHX Energy and CES Energy

Assuming the 90 days trading horizon PHX Energy is expected to generate 4.41 times less return on investment than CES Energy. But when comparing it to its historical volatility, PHX Energy Services is 1.34 times less risky than CES Energy. It trades about 0.06 of its potential returns per unit of risk. CES Energy Solutions is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  721.00  in CES Energy Solutions on September 13, 2024 and sell it today you would earn a total of  242.00  from holding CES Energy Solutions or generate 33.56% return on investment over 90 days.

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

PHX Energy Services  vs.  CES Energy Solutions

PHX Energy Services

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PHX Energy Services are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, PHX Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CES Energy Solutions

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CES Energy Solutions are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, CES Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PHX Energy and CES Energy

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

The idea behind PHX Energy Services and CES Energy Solutions 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.