Correlation Between Baker Hughes and Kosmos Energy

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

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

Diversification Opportunities for Baker Hughes and Kosmos Energy

0.13

Correlation Coefficient

Baker Hughes  Kosmos Energy

Average diversification

The 3 months correlation between Baker and Kosmos is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Baker Hughes Co and Kosmos Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kosmos Energy and Baker Hughes 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 Baker Hughes Co are associated (or correlated) with Kosmos Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kosmos Energy has no effect on the direction of Baker Hughes i.e., Baker Hughes and Kosmos Energy go up and down completely randomly.

Pair Corralation between Baker Hughes and Kosmos Energy

Considering the 90-day investment horizon Baker Hughes Co is expected to generate 0.4 times more return on investment than Kosmos Energy. However, Baker Hughes Co is 2.47 times less risky than Kosmos Energy. It trades about 0.21 of its potential returns per unit of risk. Kosmos Energy is currently generating about 0.06 per unit of risk. If you would invest  2,905  in Baker Hughes Co on January 20, 2024 and sell it today you would earn a total of  315.00  from holding Baker Hughes Co or generate 10.84% return on investment over 90 days.

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

Baker Hughes Co  vs.  Kosmos Energy

Baker Hughes

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Baker Hughes Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady forward-looking signals, Baker Hughes may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Kosmos Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kosmos Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Kosmos Energy is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Baker Hughes and Kosmos Energy

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

The idea behind Baker Hughes Co and Kosmos Energy 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 CEOs Directory module to screen CEOs from public companies around the world.