Correlation Between Geospace Technologies and Cactus

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

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

Diversification Opportunities for Geospace Technologies and Cactus

0.63

Correlation Coefficient

Geospace Technologies  Cactus

Poor diversification

The 3 months correlation between Geospace and Cactus is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Geospace Technologies and Cactus Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cactus Inc and Geospace Technologies 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 Geospace Technologies are associated (or correlated) with Cactus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cactus Inc has no effect on the direction of Geospace Technologies i.e., Geospace Technologies and Cactus go up and down completely randomly.

Pair Corralation between Geospace Technologies and Cactus

Given the investment horizon of 90 days Geospace Technologies is expected to generate 1.74 times less return on investment than Cactus. In addition to that, Geospace Technologies is 1.4 times more volatile than Cactus Inc. It trades about 0.05 of its total potential returns per unit of risk. Cactus Inc is currently generating about 0.13 per unit of volatility. If you would invest  5,660  in Cactus Inc on September 3, 2024 and sell it today you would earn a total of  1,206  from holding Cactus Inc or generate 21.31% return on investment over 90 days.

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

Geospace Technologies  vs.  Cactus Inc

Geospace Technologies

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Geospace Technologies are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Geospace Technologies may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cactus Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cactus Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical indicators, Cactus exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Geospace Technologies and Cactus

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

The idea behind Geospace Technologies and Cactus Inc 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.