Correlation Between STEP Energy and PHX Energy

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

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

Diversification Opportunities for STEP Energy and PHX Energy

0.45

Correlation Coefficient

STEP Energy  PHX Energy

Very weak diversification

The 3 months correlation between STEP and PHX is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding STEP Energy Services and PHX Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PHX Energy Services and STEP 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 STEP Energy Services are associated (or correlated) with PHX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PHX Energy Services has no effect on the direction of STEP Energy i.e., STEP Energy and PHX Energy go up and down completely randomly.

Pair Corralation between STEP Energy and PHX Energy

Assuming the 90 days trading horizon STEP Energy Services is expected to generate 1.86 times more return on investment than PHX Energy. However, STEP Energy is 1.86 times more volatile than PHX Energy Services. It trades about 0.06 of its potential returns per unit of risk. PHX Energy Services is currently generating about 0.06 per unit of risk. 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	Weak
Accuracy	100.0%
Values	Daily Returns

STEP Energy Services  vs.  PHX Energy Services

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.

PHX Energy Services

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PHX Energy Services are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, PHX Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with STEP Energy and PHX Energy

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

The idea behind STEP Energy Services and PHX 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.