Correlation Between Select Energy and Methanex

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

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

Diversification Opportunities for Select Energy and Methanex

0.74

Correlation Coefficient

Select Energy  Methanex

Poor diversification

The 3 months correlation between Select and Methanex is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Select Energy Services and Methanex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methanex and Select 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 Select Energy Services are associated (or correlated) with Methanex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Methanex has no effect on the direction of Select Energy i.e., Select Energy and Methanex go up and down completely randomly.

Pair Corralation between Select Energy and Methanex

Given the investment horizon of 90 days Select Energy Services is expected to under-perform the Methanex. In addition to that, Select Energy is 1.26 times more volatile than Methanex. It trades about -0.28 of its total potential returns per unit of risk. Methanex is currently generating about 0.12 per unit of volatility. If you would invest  4,672  in Methanex on September 26, 2024 and sell it today you would earn a total of  171.00  from holding Methanex or generate 3.66% return on investment over 90 days.

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

Select Energy Services  vs.  Methanex

Select Energy Services

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Select Energy Services are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Select Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Methanex

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Methanex are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Methanex demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Select Energy and Methanex

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

The idea behind Select Energy Services and Methanex 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.