Correlation Between Core Laboratories and Tetra Technologies

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

Diversification Opportunities for Core Laboratories and Tetra Technologies

0.86

Correlation Coefficient

Core Laboratories  Tetra Technologies

Very poor diversification

The 3 months correlation between Core and Tetra is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Core Laboratories NV and Tetra Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tetra Technologies 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 Tetra Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tetra Technologies has no effect on the direction of Core Laboratories i.e., Core Laboratories and Tetra Technologies go up and down completely randomly.

Pair Corralation between Core Laboratories and Tetra Technologies

Considering the 90-day investment horizon Core Laboratories is expected to generate 2.07 times less return on investment than Tetra Technologies. But when comparing it to its historical volatility, Core Laboratories NV is 1.39 times less risky than Tetra Technologies. It trades about 0.08 of its potential returns per unit of risk. Tetra Technologies is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  294.00  in Tetra Technologies on September 4, 2024 and sell it today you would earn a total of  93.00  from holding Tetra Technologies or generate 31.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Core Laboratories NV  vs.  Tetra Technologies

Core Laboratories

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Core Laboratories NV are ranked lower than 6 (%) 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.

Tetra Technologies

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tetra Technologies are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, Tetra Technologies demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Core Laboratories and Tetra Technologies

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

The idea behind Core Laboratories NV and Tetra Technologies 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.