Correlation Between Select Energy and Element Solutions
Can any of the company-specific risk be diversified away by investing in both Select Energy and Element Solutions 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 Element Solutions 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 Element Solutions, you can compare the effects of market volatilities on Select Energy and Element Solutions 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 Element Solutions. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Energy and Element Solutions.
Diversification Opportunities for Select Energy and Element Solutions
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Select and Element is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Select Energy Services and Element Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Element Solutions 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 Element Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Element Solutions has no effect on the direction of Select Energy i.e., Select Energy and Element Solutions go up and down completely randomly.
Pair Corralation between Select Energy and Element Solutions
Given the investment horizon of 90 days Select Energy Services is expected to generate 1.5 times more return on investment than Element Solutions. However, Select Energy is 1.5 times more volatile than Element Solutions. It trades about 0.06 of its potential returns per unit of risk. Element Solutions is currently generating about 0.06 per unit of risk. If you would invest 755.00 in Select Energy Services on August 27, 2024 and sell it today you would earn a total of 714.00 from holding Select Energy Services or generate 94.57% 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. Element Solutions
Performance |
| Timeline |
| Select Energy Services |
| Element Solutions |
Select Energy and Element Solutions Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Select Energy and Element Solutions
The main advantage of trading using opposite Select Energy and Element Solutions positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Energy position performs unexpectedly, Element Solutions 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 Element Solutions will offset losses from the drop in Element Solutions' long position.| Select Energy vs. ProPetro Holding Corp | Select Energy vs. RPC Inc | Select Energy vs. MRC Global | Select Energy vs. Expro Group Holdings |
| Element Solutions vs. Oil Dri | Element Solutions vs. H B Fuller | Element Solutions vs. Northern Technologies | Element Solutions vs. Cabot |
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 Stocks Directory module to find actively traded stocks across global markets.
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