Correlation Between Archrock and Basic Energy

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Can any of the company-specific risk be diversified away by investing in both Archrock and Basic 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 Archrock and Basic Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Archrock and Basic Energy Services, you can compare the effects of market volatilities on Archrock and Basic 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 Archrock with a short position of Basic Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Archrock and Basic Energy.

Diversification Opportunities for Archrock and Basic Energy

-0.63
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Archrock and Basic is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Archrock and Basic Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Energy Services and Archrock 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 Archrock are associated (or correlated) with Basic Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Energy Services has no effect on the direction of Archrock i.e., Archrock and Basic Energy go up and down completely randomly.

Pair Corralation between Archrock and Basic Energy

Given the investment horizon of 90 days Archrock is expected to generate 39.39 times less return on investment than Basic Energy. But when comparing it to its historical volatility, Archrock is 24.84 times less risky than Basic Energy. It trades about 0.04 of its potential returns per unit of risk. Basic Energy Services is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  18.00  in Basic Energy Services on May 21, 2022 and sell it today you would lose (17.00)  from holding Basic Energy Services or give up 94.44% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy99.8%
ValuesDaily Returns

Archrock  vs.  Basic Energy Services

 Performance (%) 
       Timeline  
Archrock 
Archrock Performance
0 of 100
Over the last 90 days Archrock 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 somewhat strong which may send shares a bit higher in September 2022. The current disturbance may also be a sign of long term up-swing for the company investors.

Archrock Price Channel

Basic Energy Services 
Basic Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Basic Energy Services are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Basic Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Basic Price Channel

Archrock and Basic Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Archrock and Basic Energy

The main advantage of trading using opposite Archrock and Basic Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Archrock position performs unexpectedly, Basic 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 Basic Energy will offset losses from the drop in Basic Energy's long position.
The idea behind Archrock and Basic 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 Focused Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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