Correlation Between Archrock and Adams Resources

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

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

Diversification Opportunities for Archrock and Adams Resources

0.92

Correlation Coefficient

Archrock  Adams Resources

Almost no diversification

The 3 months correlation between Archrock and Adams is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Archrock and Adams Resources Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adams Resources Energy and Archrock 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 Archrock are associated (or correlated) with Adams Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adams Resources Energy has no effect on the direction of Archrock i.e., Archrock and Adams Resources go up and down completely randomly.

Pair Corralation between Archrock and Adams Resources

Given the investment horizon of 90 days Archrock is expected to generate 1.6 times less return on investment than Adams Resources. But when comparing it to its historical volatility, Archrock is 2.06 times less risky than Adams Resources. It trades about 0.22 of its potential returns per unit of risk. Adams Resources Energy is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,368  in Adams Resources Energy on September 2, 2024 and sell it today you would earn a total of  1,354  from holding Adams Resources Energy or generate 57.18% return on investment over 90 days.

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

Archrock  vs.  Adams Resources Energy

Archrock

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Archrock are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Archrock exhibited solid returns over the last few months and may actually be approaching a breakup point.

Adams Resources Energy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Adams Resources Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, Adams Resources exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Archrock and Adams Resources

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

The idea behind Archrock and Adams Resources Energy 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.