Correlation Between Select Energy and Kodiak Gas

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

Diversification Opportunities for Select Energy and Kodiak Gas

0.91

Correlation Coefficient

Select Energy  Kodiak Gas

Almost no diversification

The 3 months correlation between Select and Kodiak is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Select Energy Services and Kodiak Gas Services, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kodiak Gas Services, 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 Kodiak Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kodiak Gas Services, has no effect on the direction of Select Energy i.e., Select Energy and Kodiak Gas go up and down completely randomly.

Pair Corralation between Select Energy and Kodiak Gas

Given the investment horizon of 90 days Select Energy Services is expected to under-perform the Kodiak Gas. But the stock apears to be less risky and, when comparing its historical volatility, Select Energy Services is 1.21 times less risky than Kodiak Gas. The stock trades about -0.36 of its potential returns per unit of risk. The Kodiak Gas Services, is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  4,105  in Kodiak Gas Services, on September 22, 2024 and sell it today you would lose (125.00) from holding Kodiak Gas Services, or give up 3.05% of portfolio value over 90 days.

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

Select Energy Services  vs.  Kodiak Gas Services,

Select Energy Services

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Select Energy Services are ranked lower than 4 (%) 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.

Kodiak Gas Services,

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kodiak Gas Services, are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Kodiak Gas unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Select Energy and Kodiak Gas

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

The idea behind Select Energy Services and Kodiak Gas Services, 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.