Correlation Between Stampede Drilling and STEP Energy

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

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

Diversification Opportunities for Stampede Drilling and STEP Energy

-0.61

Correlation Coefficient

Stampede Drilling  STEP Energy

Excellent diversification

The 3 months correlation between Stampede and STEP is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Stampede Drilling 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 Stampede Drilling 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 Stampede Drilling 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 Stampede Drilling i.e., Stampede Drilling and STEP Energy go up and down completely randomly.

Pair Corralation between Stampede Drilling and STEP Energy

Assuming the 90 days horizon Stampede Drilling is expected to under-perform the STEP Energy. But the stock apears to be less risky and, when comparing its historical volatility, Stampede Drilling is 1.41 times less risky than STEP Energy. The stock trades about 0.0 of its potential returns per unit of risk. The STEP Energy Services is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  355.00  in STEP Energy Services on September 12, 2024 and sell it today you would earn a total of  161.00  from holding STEP Energy Services or generate 45.35% return on investment over 90 days.

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

Stampede Drilling  vs.  STEP Energy Services

Stampede Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stampede Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Stampede Drilling is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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 Stampede Drilling and STEP Energy

The main advantage of trading using opposite Stampede Drilling and STEP Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stampede Drilling 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 Stampede Drilling 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.

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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.