Correlation Between Cactus and US Silica

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

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

Diversification Opportunities for Cactus and US Silica

-0.49

Correlation Coefficient

Cactus  US Silica

Very good diversification

The 3 months correlation between Cactus and SLCA is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Cactus Inc and US Silica Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Silica Holdings 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 US Silica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Silica Holdings has no effect on the direction of Cactus i.e., Cactus and US Silica go up and down completely randomly.

Pair Corralation between Cactus and US Silica

Considering the 90-day investment horizon Cactus Inc is expected to generate 0.42 times more return on investment than US Silica. However, Cactus Inc is 2.36 times less risky than US Silica. It trades about 0.02 of its potential returns per unit of risk. US Silica Holdings is currently generating about -0.03 per unit of risk. If you would invest  5,440  in Cactus Inc on October 5, 2024 and sell it today you would earn a total of  510.00  from holding Cactus Inc or generate 9.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	78.38%
Values	Daily Returns

Cactus Inc  vs.  US Silica Holdings

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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

US Silica Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Silica Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, US Silica is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cactus and US Silica

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

The idea behind Cactus Inc and US Silica Holdings 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.