Correlation Between Select Energy and Avantor

Can any of the company-specific risk be diversified away by investing in both Select Energy and Avantor 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 Avantor 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 Avantor, you can compare the effects of market volatilities on Select Energy and Avantor 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 Avantor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Energy and Avantor.

Diversification Opportunities for Select Energy and Avantor

-0.72

Correlation Coefficient

Select Energy  Avantor

Pay attention - limited upside

The 3 months correlation between Select and Avantor is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Select Energy Services and Avantor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avantor 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 Avantor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avantor has no effect on the direction of Select Energy i.e., Select Energy and Avantor go up and down completely randomly.

Pair Corralation between Select Energy and Avantor

Given the investment horizon of 90 days Select Energy Services is expected to generate 1.33 times more return on investment than Avantor. However, Select Energy is 1.33 times more volatile than Avantor. It trades about 0.05 of its potential returns per unit of risk. Avantor is currently generating about 0.01 per unit of risk. If you would invest  869.00  in Select Energy Services on October 4, 2024 and sell it today you would earn a total of  494.00  from holding Select Energy Services or generate 56.85% return on investment over 90 days.

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

Select Energy Services  vs.  Avantor

Select Energy Services

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Select Energy Services are ranked lower than 6 (%) 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.

Avantor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avantor has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Select Energy and Avantor

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

The idea behind Select Energy Services and Avantor 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.