Correlation Between Select Energy and Ranger Energy

Can any of the company-specific risk be diversified away by investing in both Select Energy and Ranger 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 Select Energy and Ranger Energy 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 Ranger Energy Services, you can compare the effects of market volatilities on Select Energy and Ranger 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 Select Energy with a short position of Ranger Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Energy and Ranger Energy.

Diversification Opportunities for Select Energy and Ranger Energy

0.95

Correlation Coefficient

Select Energy  Ranger Energy

Almost no diversification

The 3 months correlation between Select and Ranger is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Select Energy Services and Ranger Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ranger Energy Services 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 Ranger Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ranger Energy Services has no effect on the direction of Select Energy i.e., Select Energy and Ranger Energy go up and down completely randomly.

Pair Corralation between Select Energy and Ranger Energy

Given the investment horizon of 90 days Select Energy Services is expected to generate 1.05 times more return on investment than Ranger Energy. However, Select Energy is 1.05 times more volatile than Ranger Energy Services. It trades about -0.36 of its potential returns per unit of risk. Ranger Energy Services is currently generating about -0.44 per unit of risk. If you would invest  1,446  in Select Energy Services on September 24, 2024 and sell it today you would lose (194.00) from holding Select Energy Services or give up 13.42% of portfolio value over 90 days.

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

Select Energy Services  vs.  Ranger Energy Services

Select Energy Services

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Select Energy Services are ranked lower than 4 (%) 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.

Ranger Energy Services

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ranger Energy Services are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent technical and fundamental indicators, Ranger Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Select Energy and Ranger Energy

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

The idea behind Select Energy Services and Ranger Energy Services 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.