Correlation Between Solaris Energy and Kodiak Gas

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

Diversification Opportunities for Solaris Energy and Kodiak Gas

0.88

Correlation Coefficient

Solaris Energy  Kodiak Gas

Very poor diversification

The 3 months correlation between Solaris and Kodiak is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Solaris Energy Infrastructure, 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 Solaris 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 Solaris Energy Infrastructure, 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 Solaris Energy i.e., Solaris Energy and Kodiak Gas go up and down completely randomly.

Pair Corralation between Solaris Energy and Kodiak Gas

Considering the 90-day investment horizon Solaris Energy is expected to generate 2.46 times less return on investment than Kodiak Gas. But when comparing it to its historical volatility, Solaris Energy Infrastructure, is 1.16 times less risky than Kodiak Gas. It trades about 0.1 of its potential returns per unit of risk. Kodiak Gas Services, is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,900  in Kodiak Gas Services, on August 1, 2024 and sell it today you would earn a total of  281.00  from holding Kodiak Gas Services, or generate 9.69% return on investment over 90 days.

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

Solaris Energy Infrastructure,  vs.  Kodiak Gas Services,

Solaris Energy Infra

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Solaris Energy Infrastructure, are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical and fundamental indicators, Solaris Energy may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Kodiak Gas Services,

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kodiak Gas Services, are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal 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 Solaris Energy and Kodiak Gas

The main advantage of trading using opposite Solaris Energy and Kodiak Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Solaris 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 Solaris Energy Infrastructure, 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.