Correlation Between PHX Energy and Pason Systems

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

Diversification Opportunities for PHX Energy and Pason Systems

0.92

Correlation Coefficient

PHX Energy  Pason Systems

Almost no diversification

The 3 months correlation between PHX and Pason is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding PHX Energy Services and Pason Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pason Systems 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 Pason Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pason Systems has no effect on the direction of PHX Energy i.e., PHX Energy and Pason Systems go up and down completely randomly.

Pair Corralation between PHX Energy and Pason Systems

Assuming the 90 days trading horizon PHX Energy is expected to generate 3.56 times less return on investment than Pason Systems. But when comparing it to its historical volatility, PHX Energy Services is 1.17 times less risky than Pason Systems. It trades about 0.01 of its potential returns per unit of risk. Pason Systems is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,312  in Pason Systems on December 28, 2024 and sell it today you would earn a total of  23.00  from holding Pason Systems or generate 1.75% return on investment over 90 days.

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

PHX Energy Services  vs.  Pason Systems

PHX Energy Services

Risk-Adjusted Performance

Very Weak

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

Pason Systems

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pason Systems are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Pason Systems is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with PHX Energy and Pason Systems

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

The idea behind PHX Energy Services and Pason Systems 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.