Correlation Between Cactus and Profire Ene

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

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

Diversification Opportunities for Cactus and Profire Ene

0.7

Correlation Coefficient

Cactus  Profire Ene

Poor diversification

The 3 months correlation between Cactus and Profire is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Cactus Inc and Profire Ene in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Profire Ene 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 Profire Ene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Profire Ene has no effect on the direction of Cactus i.e., Cactus and Profire Ene go up and down completely randomly.

Pair Corralation between Cactus and Profire Ene

Considering the 90-day investment horizon Cactus is expected to generate 2.79 times less return on investment than Profire Ene. But when comparing it to its historical volatility, Cactus Inc is 2.44 times less risky than Profire Ene. It trades about 0.11 of its potential returns per unit of risk. Profire Ene is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  166.00  in Profire Ene on September 4, 2024 and sell it today you would earn a total of  86.00  from holding Profire Ene or generate 51.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Cactus Inc  vs.  Profire Ene

Cactus Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cactus Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical indicators, Cactus exhibited solid returns over the last few months and may actually be approaching a breakup point.

Profire Ene

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Profire Ene are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal forward indicators, Profire Ene exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cactus and Profire Ene

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

The idea behind Cactus Inc and Profire Ene 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.