Correlation Between Liberty Energy and ADX Energy

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

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

Diversification Opportunities for Liberty Energy and ADX Energy

0.08

Correlation Coefficient

Liberty Energy  ADX Energy

Significant diversification

The 3 months correlation between Liberty and ADX is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Energy Corp and ADX Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADX Energy and Liberty Energy 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 Energy Corp are associated (or correlated) with ADX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADX Energy has no effect on the direction of Liberty Energy i.e., Liberty Energy and ADX Energy go up and down completely randomly.

Pair Corralation between Liberty Energy and ADX Energy

Given the investment horizon of 90 days Liberty Energy Corp is expected to generate 7.45 times more return on investment than ADX Energy. However, Liberty Energy is 7.45 times more volatile than ADX Energy. It trades about 0.11 of its potential returns per unit of risk. ADX Energy is currently generating about -0.04 per unit of risk. If you would invest  0.01  in Liberty Energy Corp on September 17, 2024 and sell it today you would lose  0.00  from holding Liberty Energy Corp or give up 0.0% of portfolio value over 90 days.

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

Liberty Energy Corp  vs.  ADX Energy

Liberty Energy Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Energy Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Liberty Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

ADX Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ADX Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Liberty Energy and ADX Energy

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

The idea behind Liberty Energy Corp and ADX Energy 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.