Correlation Between Scout Small and Oil Equipment

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

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

Diversification Opportunities for Scout Small and Oil Equipment

0.41

Correlation Coefficient

Scout Small  Oil Equipment

Very weak diversification

The 3 months correlation between Scout and Oil is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Scout Small Cap and Oil Equipment Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Equipment Services and Scout Small 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 Scout Small Cap are associated (or correlated) with Oil Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Equipment Services has no effect on the direction of Scout Small i.e., Scout Small and Oil Equipment go up and down completely randomly.

Pair Corralation between Scout Small and Oil Equipment

Assuming the 90 days horizon Scout Small Cap is expected to generate 0.37 times more return on investment than Oil Equipment. However, Scout Small Cap is 2.67 times less risky than Oil Equipment. It trades about 0.24 of its potential returns per unit of risk. Oil Equipment Services is currently generating about -0.09 per unit of risk. If you would invest  3,274  in Scout Small Cap on September 17, 2024 and sell it today you would earn a total of  145.00  from holding Scout Small Cap or generate 4.43% return on investment over 90 days.

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

Scout Small Cap  vs.  Oil Equipment Services

Scout Small Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Scout Small Cap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, Scout Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Oil Equipment Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oil Equipment Services has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Oil Equipment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Scout Small and Oil Equipment

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

The idea behind Scout Small Cap and Oil Equipment 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.