Correlation Between Tetra Technologies and Valaris

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

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

Diversification Opportunities for Tetra Technologies and Valaris

0.8

Correlation Coefficient

Tetra Technologies  Valaris

Very poor diversification

The 3 months correlation between Tetra and Valaris is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Tetra Technologies and Valaris in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valaris and Tetra Technologies 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 Tetra Technologies are associated (or correlated) with Valaris. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valaris has no effect on the direction of Tetra Technologies i.e., Tetra Technologies and Valaris go up and down completely randomly.

Pair Corralation between Tetra Technologies and Valaris

Considering the 90-day investment horizon Tetra Technologies is expected to generate 1.14 times more return on investment than Valaris. However, Tetra Technologies is 1.14 times more volatile than Valaris. It trades about 0.05 of its potential returns per unit of risk. Valaris is currently generating about -0.02 per unit of risk. If you would invest  354.00  in Tetra Technologies on December 28, 2024 and sell it today you would earn a total of  21.00  from holding Tetra Technologies or generate 5.93% return on investment over 90 days.

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

Tetra Technologies  vs.  Valaris

Tetra Technologies

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tetra Technologies are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Tetra Technologies may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Valaris

Risk-Adjusted Performance

Very Weak

Over the last 90 days Valaris has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Valaris is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Tetra Technologies and Valaris

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

The idea behind Tetra Technologies and Valaris 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.