Correlation Between Western Energy and Stampede Drilling

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

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

Diversification Opportunities for Western Energy and Stampede Drilling

0.63

Correlation Coefficient

Western Energy  Stampede Drilling

Poor diversification

The 3 months correlation between Western and Stampede is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Western Energy Services and Stampede Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stampede Drilling and Western Energy 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 Western Energy Services are associated (or correlated) with Stampede Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stampede Drilling has no effect on the direction of Western Energy i.e., Western Energy and Stampede Drilling go up and down completely randomly.

Pair Corralation between Western Energy and Stampede Drilling

Assuming the 90 days trading horizon Western Energy Services is expected to generate 1.1 times more return on investment than Stampede Drilling. However, Western Energy is 1.1 times more volatile than Stampede Drilling. It trades about 0.08 of its potential returns per unit of risk. Stampede Drilling is currently generating about -0.15 per unit of risk. If you would invest  250.00  in Western Energy Services on October 6, 2024 and sell it today you would earn a total of  22.00  from holding Western Energy Services or generate 8.8% return on investment over 90 days.

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

Western Energy Services  vs.  Stampede Drilling

Western Energy Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Western Energy is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Stampede Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stampede Drilling 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 fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Western Energy and Stampede Drilling

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

The idea behind Western Energy Services and Stampede Drilling 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.