Correlation Between Pason Systems and STEP Energy

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

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

Diversification Opportunities for Pason Systems and STEP Energy

0.69

Correlation Coefficient

Pason Systems  STEP Energy

Poor diversification

The 3 months correlation between Pason and STEP is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Pason Systems and STEP Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STEP Energy Services and Pason Systems 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 Pason Systems are associated (or correlated) with STEP Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STEP Energy Services has no effect on the direction of Pason Systems i.e., Pason Systems and STEP Energy go up and down completely randomly.

Pair Corralation between Pason Systems and STEP Energy

Assuming the 90 days trading horizon Pason Systems is expected to under-perform the STEP Energy. But the stock apears to be less risky and, when comparing its historical volatility, Pason Systems is 2.16 times less risky than STEP Energy. The stock trades about -0.01 of its potential returns per unit of risk. The STEP Energy Services is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  357.00  in STEP Energy Services on September 13, 2024 and sell it today you would earn a total of  168.00  from holding STEP Energy Services or generate 47.06% return on investment over 90 days.

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

Pason Systems  vs.  STEP Energy Services

Pason Systems

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pason Systems are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, Pason Systems may actually be approaching a critical reversion point that can send shares even higher in January 2025.

STEP Energy Services

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in STEP Energy Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, STEP Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pason Systems and STEP Energy

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

The idea behind Pason Systems and STEP 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..