Correlation Between Petrofac and ChampionX

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

By analyzing existing cross correlation between Petrofac Ltd ADR and ChampionX, you can compare the effects of market volatilities on Petrofac and ChampionX 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 Petrofac with a short position of ChampionX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petrofac and ChampionX.

Diversification Opportunities for Petrofac and ChampionX

-0.58

Correlation Coefficient

Petrofac  ChampionX

Excellent diversification

The 3 months correlation between Petrofac and ChampionX is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Petrofac Ltd ADR and ChampionX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChampionX and Petrofac 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 Petrofac Ltd ADR are associated (or correlated) with ChampionX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChampionX has no effect on the direction of Petrofac i.e., Petrofac and ChampionX go up and down completely randomly.

Pair Corralation between Petrofac and ChampionX

Assuming the 90 days horizon Petrofac is expected to generate 2.51 times less return on investment than ChampionX. In addition to that, Petrofac is 5.66 times more volatile than ChampionX. It trades about 0.01 of its total potential returns per unit of risk. ChampionX is currently generating about 0.11 per unit of volatility. If you would invest  2,620  in ChampionX on December 23, 2024 and sell it today you would earn a total of  334.00  from holding ChampionX or generate 12.75% return on investment over 90 days.

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

Petrofac Ltd ADR  vs.  ChampionX

Petrofac ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Petrofac Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Petrofac is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ChampionX

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ChampionX are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical indicators, ChampionX showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petrofac and ChampionX

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

The idea behind Petrofac Ltd ADR and ChampionX 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.