Correlation Between Select Energy and Westlake Chemical

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

Diversification Opportunities for Select Energy and Westlake Chemical

-0.57

Correlation Coefficient

Select Energy  Westlake Chemical

Excellent diversification

The 3 months correlation between Select and Westlake is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Select Energy Services and Westlake Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westlake Chemical 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 Westlake Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westlake Chemical has no effect on the direction of Select Energy i.e., Select Energy and Westlake Chemical go up and down completely randomly.

Pair Corralation between Select Energy and Westlake Chemical

Given the investment horizon of 90 days Select Energy Services is expected to generate 2.93 times more return on investment than Westlake Chemical. However, Select Energy is 2.93 times more volatile than Westlake Chemical. It trades about 0.14 of its potential returns per unit of risk. Westlake Chemical is currently generating about -0.08 per unit of risk. If you would invest  1,106  in Select Energy Services on September 3, 2024 and sell it today you would earn a total of  394.00  from holding Select Energy Services or generate 35.62% return on investment over 90 days.

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

Select Energy Services  vs.  Westlake Chemical

Select Energy Services

Risk-Adjusted Performance

11 of 100

OK

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.

Westlake Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Westlake Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Select Energy and Westlake Chemical

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

The idea behind Select Energy Services and Westlake Chemical 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.