Correlation Between Bakken Water and ChampionX

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

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

Diversification Opportunities for Bakken Water and ChampionX

-0.25

Correlation Coefficient

Bakken Water  ChampionX

Very good diversification

The 3 months correlation between Bakken and ChampionX is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Bakken Water Transfer and ChampionX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChampionX and Bakken Water 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 Bakken Water Transfer are associated (or correlated) with ChampionX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChampionX has no effect on the direction of Bakken Water i.e., Bakken Water and ChampionX go up and down completely randomly.

Pair Corralation between Bakken Water and ChampionX

Given the investment horizon of 90 days Bakken Water Transfer is expected to generate 7.29 times more return on investment than ChampionX. However, Bakken Water is 7.29 times more volatile than ChampionX. It trades about 0.18 of its potential returns per unit of risk. ChampionX is currently generating about -0.03 per unit of risk. If you would invest  1.80  in Bakken Water Transfer on September 17, 2024 and sell it today you would earn a total of  4.20  from holding Bakken Water Transfer or generate 233.33% return on investment over 90 days.

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

Bakken Water Transfer  vs.  ChampionX

Bakken Water Transfer

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bakken Water Transfer are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Bakken Water showed solid returns over the last few months and may actually be approaching a breakup point.

ChampionX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ChampionX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, ChampionX is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bakken Water and ChampionX

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

The idea behind Bakken Water Transfer and ChampionX 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.

Check out your portfolio center.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.