Correlation Between Select Energy and Braskem SA

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

Diversification Opportunities for Select Energy and Braskem SA

0.53

Correlation Coefficient

Select Energy  Braskem SA

Very weak diversification

The 3 months correlation between Select and Braskem is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Select Energy Services and Braskem SA Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Braskem SA Class 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 Braskem SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Braskem SA Class has no effect on the direction of Select Energy i.e., Select Energy and Braskem SA go up and down completely randomly.

Pair Corralation between Select Energy and Braskem SA

Given the investment horizon of 90 days Select Energy Services is expected to under-perform the Braskem SA. But the stock apears to be less risky and, when comparing its historical volatility, Select Energy Services is 1.42 times less risky than Braskem SA. The stock trades about -0.11 of its potential returns per unit of risk. The Braskem SA Class is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  384.00  in Braskem SA Class on December 25, 2024 and sell it today you would lose (21.00) from holding Braskem SA Class or give up 5.47% of portfolio value over 90 days.

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

Select Energy Services  vs.  Braskem SA Class

Select Energy Services

Risk-Adjusted Performance

Very Weak

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

Braskem SA Class

Risk-Adjusted Performance

Very Weak

Over the last 90 days Braskem SA Class has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Braskem SA is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Select Energy and Braskem SA

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

The idea behind Select Energy Services and Braskem SA Class 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.