Correlation Between Archrock and Flotek Industries

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

By analyzing existing cross correlation between Archrock and Flotek Industries, you can compare the effects of market volatilities on Archrock and Flotek Industries 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 Flotek Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Archrock and Flotek Industries.

Diversification Opportunities for Archrock and Flotek Industries

0.95

Correlation Coefficient

Archrock  Flotek Industries

Almost no diversification

The 3 months correlation between Archrock and Flotek is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Archrock and Flotek Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flotek Industries 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 Flotek Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flotek Industries has no effect on the direction of Archrock i.e., Archrock and Flotek Industries go up and down completely randomly.

Pair Corralation between Archrock and Flotek Industries

Given the investment horizon of 90 days Archrock is expected to generate 2.53 times less return on investment than Flotek Industries. But when comparing it to its historical volatility, Archrock is 1.89 times less risky than Flotek Industries. It trades about 0.22 of its potential returns per unit of risk. Flotek Industries is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  401.00  in Flotek Industries on August 31, 2024 and sell it today you would earn a total of  449.00  from holding Flotek Industries or generate 111.97% 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.  Flotek Industries

Archrock

Risk-Adjusted Performance

17 of 100

Good

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 weak basic indicators, Archrock exhibited solid returns over the last few months and may actually be approaching a breakup point.

Flotek Industries

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Flotek Industries are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Flotek Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Archrock and Flotek Industries

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

The idea behind Archrock and Flotek Industries 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.