Correlation Between Cactus and ProPetro Holding

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

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

Diversification Opportunities for Cactus and ProPetro Holding

0.47

Correlation Coefficient

Cactus  ProPetro Holding

Very weak diversification

The 3 months correlation between Cactus and ProPetro is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Cactus Inc and ProPetro Holding Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProPetro Holding Corp 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 ProPetro Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProPetro Holding Corp has no effect on the direction of Cactus i.e., Cactus and ProPetro Holding go up and down completely randomly.

Pair Corralation between Cactus and ProPetro Holding

Considering the 90-day investment horizon Cactus Inc is expected to generate 0.79 times more return on investment than ProPetro Holding. However, Cactus Inc is 1.27 times less risky than ProPetro Holding. It trades about 0.03 of its potential returns per unit of risk. ProPetro Holding Corp is currently generating about 0.01 per unit of risk. If you would invest  4,915  in Cactus Inc on September 19, 2024 and sell it today you would earn a total of  903.00  from holding Cactus Inc or generate 18.37% return on investment over 90 days.

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

Cactus Inc  vs.  ProPetro Holding Corp

Cactus Inc

Risk-Adjusted Performance

0 of 100

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 rather sound technical indicators, Cactus is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

ProPetro Holding Corp

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProPetro Holding Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, ProPetro Holding reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cactus and ProPetro Holding

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

The idea behind Cactus Inc and ProPetro Holding Corp 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 Anywhere module to track or share privately all of your investments from the convenience of any device.