Correlation Between Core Laboratories and Baker Hughes

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

By analyzing existing cross correlation between Core Laboratories NV and Baker Hughes Co, you can compare the effects of market volatilities on Core Laboratories and Baker Hughes 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 Core Laboratories with a short position of Baker Hughes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Core Laboratories and Baker Hughes.

Diversification Opportunities for Core Laboratories and Baker Hughes

0.87

Correlation Coefficient

Core Laboratories  Baker Hughes

Very poor diversification

The 3 months correlation between Core and Baker is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Core Laboratories NV and Baker Hughes Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baker Hughes and Core Laboratories 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 Core Laboratories NV are associated (or correlated) with Baker Hughes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baker Hughes has no effect on the direction of Core Laboratories i.e., Core Laboratories and Baker Hughes go up and down completely randomly.

Pair Corralation between Core Laboratories and Baker Hughes

Considering the 90-day investment horizon Core Laboratories is expected to generate 2.71 times less return on investment than Baker Hughes. In addition to that, Core Laboratories is 1.5 times more volatile than Baker Hughes Co. It trades about 0.03 of its total potential returns per unit of risk. Baker Hughes Co is currently generating about 0.13 per unit of volatility. If you would invest  3,166  in Baker Hughes Co on September 15, 2024 and sell it today you would earn a total of  1,049  from holding Baker Hughes Co or generate 33.13% return on investment over 90 days.

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

Core Laboratories NV  vs.  Baker Hughes Co

Core Laboratories

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Core Laboratories NV are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting essential indicators, Core Laboratories sustained solid returns over the last few months and may actually be approaching a breakup point.

Baker Hughes

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Baker Hughes Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward-looking signals, Baker Hughes reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Core Laboratories and Baker Hughes

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

The idea behind Core Laboratories NV and Baker Hughes Co 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.