Correlation Between Oil States and Solaris Energy

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

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

Diversification Opportunities for Oil States and Solaris Energy

0.76

Correlation Coefficient

Oil States  Solaris Energy

Poor diversification

The 3 months correlation between Oil and Solaris is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Oil States International and Solaris Energy Infrastructure, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solaris Energy Infra and Oil States 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 Oil States International are associated (or correlated) with Solaris Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solaris Energy Infra has no effect on the direction of Oil States i.e., Oil States and Solaris Energy go up and down completely randomly.

Pair Corralation between Oil States and Solaris Energy

Considering the 90-day investment horizon Oil States is expected to generate 3.31 times less return on investment than Solaris Energy. But when comparing it to its historical volatility, Oil States International is 1.47 times less risky than Solaris Energy. It trades about 0.33 of its potential returns per unit of risk. Solaris Energy Infrastructure, is currently generating about 0.74 of returns per unit of risk over similar time horizon. If you would invest  1,292  in Solaris Energy Infrastructure, on September 2, 2024 and sell it today you would earn a total of  1,173  from holding Solaris Energy Infrastructure, or generate 90.79% return on investment over 90 days.

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

Oil States International  vs.  Solaris Energy Infrastructure,

Oil States International

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Oil States International are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Oil States unveiled solid returns over the last few months and may actually be approaching a breakup point.

Solaris Energy Infra

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Solaris Energy Infrastructure, are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical and fundamental indicators, Solaris Energy demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Oil States and Solaris Energy

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

The idea behind Oil States International and Solaris Energy Infrastructure, 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.