Correlation Between Bakken Water and Ranger Energy

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

Diversification Opportunities for Bakken Water and Ranger Energy

0.32

Correlation Coefficient

Bakken Water  Ranger Energy

Weak diversification

The 3 months correlation between Bakken and Ranger is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Bakken Water Transfer and Ranger Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ranger Energy Services 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 Ranger Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ranger Energy Services has no effect on the direction of Bakken Water i.e., Bakken Water and Ranger Energy go up and down completely randomly.

Pair Corralation between Bakken Water and Ranger Energy

Given the investment horizon of 90 days Bakken Water Transfer is expected to generate 11.09 times more return on investment than Ranger Energy. However, Bakken Water is 11.09 times more volatile than Ranger Energy Services. It trades about 0.34 of its potential returns per unit of risk. Ranger Energy Services is currently generating about -0.01 per unit of risk. If you would invest  1.70  in Bakken Water Transfer on September 17, 2024 and sell it today you would earn a total of  4.30  from holding Bakken Water Transfer or generate 252.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Bakken Water Transfer  vs.  Ranger Energy Services

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.

Ranger Energy Services

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ranger Energy Services are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting technical and fundamental indicators, Ranger Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bakken Water and Ranger Energy

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

The idea behind Bakken Water Transfer and Ranger Energy 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.