Correlation Between PHX Energy and AKITA Drilling

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

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

Diversification Opportunities for PHX Energy and AKITA Drilling

0.32

Correlation Coefficient

PHX Energy  AKITA Drilling

Weak diversification

The 3 months correlation between PHX and AKITA is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding PHX Energy Services and AKITA Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AKITA Drilling and PHX 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 PHX Energy Services are associated (or correlated) with AKITA Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AKITA Drilling has no effect on the direction of PHX Energy i.e., PHX Energy and AKITA Drilling go up and down completely randomly.

Pair Corralation between PHX Energy and AKITA Drilling

Assuming the 90 days horizon PHX Energy is expected to generate 24.87 times less return on investment than AKITA Drilling. But when comparing it to its historical volatility, PHX Energy Services is 1.17 times less risky than AKITA Drilling. It trades about 0.01 of its potential returns per unit of risk. AKITA Drilling is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  98.00  in AKITA Drilling on September 17, 2024 and sell it today you would earn a total of  17.00  from holding AKITA Drilling or generate 17.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

PHX Energy Services  vs.  AKITA Drilling

PHX Energy Services

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days PHX Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, PHX Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

AKITA Drilling

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with PHX Energy and AKITA Drilling

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

The idea behind PHX Energy Services and AKITA Drilling 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.