Correlation Between Valaris and KLX Energy

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

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

Diversification Opportunities for Valaris and KLX Energy

0.34

Correlation Coefficient

Valaris  KLX Energy

Weak diversification

The 3 months correlation between Valaris and KLX is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Valaris and KLX Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLX Energy Services and Valaris 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 Valaris are associated (or correlated) with KLX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KLX Energy Services has no effect on the direction of Valaris i.e., Valaris and KLX Energy go up and down completely randomly.

Pair Corralation between Valaris and KLX Energy

Considering the 90-day investment horizon Valaris is expected to generate 0.73 times more return on investment than KLX Energy. However, Valaris is 1.37 times less risky than KLX Energy. It trades about -0.26 of its potential returns per unit of risk. KLX Energy Services is currently generating about -0.43 per unit of risk. If you would invest  4,760  in Valaris on September 24, 2024 and sell it today you would lose (665.00) from holding Valaris or give up 13.97% of portfolio value over 90 days.

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

Valaris  vs.  KLX Energy Services

Valaris

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valaris has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

KLX Energy Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KLX Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Valaris and KLX Energy

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

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