Correlation Between Liberty Oilfield and Valaris

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

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

Diversification Opportunities for Liberty Oilfield and Valaris

0.45

Correlation Coefficient

Liberty Oilfield  Valaris

Very weak diversification

The 3 months correlation between Liberty and Valaris is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Oilfield Services and Valaris in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valaris and Liberty Oilfield 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 Liberty Oilfield Services are associated (or correlated) with Valaris. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valaris has no effect on the direction of Liberty Oilfield i.e., Liberty Oilfield and Valaris go up and down completely randomly.

Pair Corralation between Liberty Oilfield and Valaris

Given the investment horizon of 90 days Liberty Oilfield Services is expected to generate 0.91 times more return on investment than Valaris. However, Liberty Oilfield Services is 1.1 times less risky than Valaris. It trades about 0.03 of its potential returns per unit of risk. Valaris is currently generating about -0.19 per unit of risk. If you would invest  1,832  in Liberty Oilfield Services on September 27, 2024 and sell it today you would earn a total of  21.00  from holding Liberty Oilfield Services or generate 1.15% return on investment over 90 days.

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

Liberty Oilfield Services  vs.  Valaris

Liberty Oilfield Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liberty Oilfield Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Liberty Oilfield is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Valaris

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valaris has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Liberty Oilfield and Valaris

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

The idea behind Liberty Oilfield Services and Valaris 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.