Correlation Between Select Energy and Core Laboratories

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

Diversification Opportunities for Select Energy and Core Laboratories

0.78

Correlation Coefficient

Select Energy  Core Laboratories

Poor diversification

The 3 months correlation between Select and Core is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Select Energy Services and Core Laboratories NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Laboratories 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 Core Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Laboratories has no effect on the direction of Select Energy i.e., Select Energy and Core Laboratories go up and down completely randomly.

Pair Corralation between Select Energy and Core Laboratories

Given the investment horizon of 90 days Select Energy Services is expected to generate 1.26 times more return on investment than Core Laboratories. However, Select Energy is 1.26 times more volatile than Core Laboratories NV. It trades about 0.15 of its potential returns per unit of risk. Core Laboratories NV is currently generating about 0.11 per unit of risk. If you would invest  1,057  in Select Energy Services on September 13, 2024 and sell it today you would earn a total of  403.00  from holding Select Energy Services or generate 38.13% return on investment over 90 days.

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

Select Energy Services  vs.  Core Laboratories NV

Select Energy Services

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Select Energy Services are ranked lower than 11 (%) 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.

Core Laboratories

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Core Laboratories NV are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting essential indicators, Core Laboratories sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Select Energy and Core Laboratories

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

The idea behind Select Energy Services and Core Laboratories NV 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.