Correlation Between Select Energy and Innospec

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

Diversification Opportunities for Select Energy and Innospec

0.17

Correlation Coefficient

Select Energy  Innospec

Average diversification

The 3 months correlation between Select and Innospec is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Select Energy Services and Innospec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innospec 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 Innospec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innospec has no effect on the direction of Select Energy i.e., Select Energy and Innospec go up and down completely randomly.

Pair Corralation between Select Energy and Innospec

Given the investment horizon of 90 days Select Energy Services is expected to generate 1.1 times more return on investment than Innospec. However, Select Energy is 1.1 times more volatile than Innospec. It trades about 0.05 of its potential returns per unit of risk. Innospec is currently generating about -0.04 per unit of risk. If you would invest  1,040  in Select Energy Services on July 2, 2024 and sell it today you would earn a total of  62.00  from holding Select Energy Services or generate 5.96% return on investment over 90 days.

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

Select Energy Services  vs.  Innospec

Select Energy Services

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Select Energy Services are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Select Energy may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Innospec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Innospec has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Innospec is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Select Energy and Innospec

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

The idea behind Select Energy Services and Innospec 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.