Correlation Between Source Energy and STEP Energy

Can any of the company-specific risk be diversified away by investing in both Source Energy and STEP Energy 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 Source Energy and STEP Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Source Energy Services and STEP Energy Services, you can compare the effects of market volatilities on Source Energy and STEP Energy 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 Source Energy with a short position of STEP Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Source Energy and STEP Energy.

Diversification Opportunities for Source Energy and STEP Energy

0.9

Correlation Coefficient

Source Energy  STEP Energy

Almost no diversification

The 3 months correlation between Source and STEP is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Source Energy Services and STEP Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STEP Energy Services and Source 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 Source Energy Services are associated (or correlated) with STEP Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STEP Energy Services has no effect on the direction of Source Energy i.e., Source Energy and STEP Energy go up and down completely randomly.

Pair Corralation between Source Energy and STEP Energy

Assuming the 90 days horizon Source Energy Services is expected to generate 3.44 times more return on investment than STEP Energy. However, Source Energy is 3.44 times more volatile than STEP Energy Services. It trades about 0.02 of its potential returns per unit of risk. STEP Energy Services is currently generating about -0.22 per unit of risk. If you would invest  1,025  in Source Energy Services on May 27, 2025 and sell it today you would earn a total of  5.00  from holding Source Energy Services or generate 0.49% return on investment over 90 days.

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

Source Energy Services  vs.  STEP Energy Services

Source Energy Services

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Source Energy Services are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Source Energy reported solid returns over the last few months and may actually be approaching a breakup point.

STEP Energy Services

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in STEP Energy Services are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, STEP Energy may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Source Energy and STEP Energy

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

The idea behind Source Energy Services and STEP Energy 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.