Correlation Between Valaris and Cactus

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

By analyzing existing cross correlation between Valaris and Cactus Inc, you can compare the effects of market volatilities on Valaris and Cactus 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 Cactus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Valaris and Cactus.

Diversification Opportunities for Valaris and Cactus

0.84

Correlation Coefficient

Valaris  Cactus

Very poor diversification

The 3 months correlation between Valaris and Cactus is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Valaris and Cactus Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cactus Inc 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 Cactus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cactus Inc has no effect on the direction of Valaris i.e., Valaris and Cactus go up and down completely randomly.

Pair Corralation between Valaris and Cactus

Considering the 90-day investment horizon Valaris is expected to generate 1.3 times more return on investment than Cactus. However, Valaris is 1.3 times more volatile than Cactus Inc. It trades about -0.03 of its potential returns per unit of risk. Cactus Inc is currently generating about -0.16 per unit of risk. If you would invest  4,288  in Valaris on December 29, 2024 and sell it today you would lose (341.00) from holding Valaris or give up 7.95% of portfolio value over 90 days.

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

Valaris  vs.  Cactus Inc

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.

Cactus Inc

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Valaris and Cactus

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

The idea behind Valaris and Cactus Inc 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.