Correlation Between Cactus and Liberty Oilfield

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

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

Diversification Opportunities for Cactus and Liberty Oilfield

0.86

Correlation Coefficient

Cactus  Liberty Oilfield

Very poor diversification

The 3 months correlation between Cactus and Liberty is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Cactus Inc and Liberty Oilfield Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Oilfield Services and Cactus 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 Cactus Inc are associated (or correlated) with Liberty Oilfield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Oilfield Services has no effect on the direction of Cactus i.e., Cactus and Liberty Oilfield go up and down completely randomly.

Pair Corralation between Cactus and Liberty Oilfield

Considering the 90-day investment horizon Cactus Inc is expected to under-perform the Liberty Oilfield. But the stock apears to be less risky and, when comparing its historical volatility, Cactus Inc is 1.33 times less risky than Liberty Oilfield. The stock trades about -0.15 of its potential returns per unit of risk. The Liberty Oilfield Services is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  1,957  in Liberty Oilfield Services on December 28, 2024 and sell it today you would lose (388.00) from holding Liberty Oilfield Services or give up 19.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

Cactus Inc  vs.  Liberty Oilfield Services

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 uncertain 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.

Liberty Oilfield Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Liberty Oilfield Services 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 basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Cactus and Liberty Oilfield

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

The idea behind Cactus Inc and Liberty Oilfield 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.