Correlation Between Select Energy and Archrock

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

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

Diversification Opportunities for Select Energy and Archrock

0.95

Correlation Coefficient

Select Energy  Archrock

Almost no diversification

The 3 months correlation between Select and Archrock is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Select Energy Services and Archrock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Archrock and Select 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 Select Energy Services are associated (or correlated) with Archrock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Archrock has no effect on the direction of Select Energy i.e., Select Energy and Archrock go up and down completely randomly.

Pair Corralation between Select Energy and Archrock

Given the investment horizon of 90 days Select Energy is expected to generate 1.25 times less return on investment than Archrock. But when comparing it to its historical volatility, Select Energy Services is 1.22 times less risky than Archrock. It trades about 0.19 of its potential returns per unit of risk. Archrock is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,361  in Archrock on September 12, 2024 and sell it today you would earn a total of  208.00  from holding Archrock or generate 8.81% return on investment over 90 days.

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

Select Energy Services  vs.  Archrock

Select Energy Services

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Select Energy Services are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Select Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Archrock

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Archrock are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Archrock exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Select Energy and Archrock

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

The idea behind Select Energy Services and Archrock 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.