Correlation Between Solaris Oilfield and Natural Gas

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

By analyzing existing cross correlation between Solaris Oilfield Infrastructure and Natural Gas Services, you can compare the effects of market volatilities on Solaris Oilfield and Natural Gas 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 Solaris Oilfield with a short position of Natural Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solaris Oilfield and Natural Gas.

Diversification Opportunities for Solaris Oilfield and Natural Gas

0.44

Correlation Coefficient

Solaris Oilfield  Natural Gas

Very weak diversification

The 3 months correlation between Solaris and Natural is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Solaris Oilfield Infrastructur and Natural Gas Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Gas Services and Solaris Oilfield 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 Solaris Oilfield Infrastructure are associated (or correlated) with Natural Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Gas Services has no effect on the direction of Solaris Oilfield i.e., Solaris Oilfield and Natural Gas go up and down completely randomly.

Pair Corralation between Solaris Oilfield and Natural Gas

Considering the 90-day investment horizon Solaris Oilfield is expected to generate 1.79 times less return on investment than Natural Gas. In addition to that, Solaris Oilfield is 1.18 times more volatile than Natural Gas Services. It trades about 0.03 of its total potential returns per unit of risk. Natural Gas Services is currently generating about 0.07 per unit of volatility. If you would invest  1,146  in Natural Gas Services on September 20, 2024 and sell it today you would earn a total of  1,254  from holding Natural Gas Services or generate 109.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	86.29%
Values	Daily Returns

Solaris Oilfield Infrastructur  vs.  Natural Gas Services

Solaris Oilfield Inf

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solaris Oilfield Infrastructure has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Solaris Oilfield is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Natural Gas Services

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Gas Services are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Natural Gas unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Solaris Oilfield and Natural Gas

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

The idea behind Solaris Oilfield Infrastructure and Natural Gas 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.