Correlation Between Forum Energy and Flotek Industries

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

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

Diversification Opportunities for Forum Energy and Flotek Industries

-0.06

Correlation Coefficient

Forum Energy  Flotek Industries

Good diversification

The 3 months correlation between Forum and Flotek is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Forum Energy Technologies and Flotek Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flotek Industries and Forum 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 Forum Energy Technologies are associated (or correlated) with Flotek Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flotek Industries has no effect on the direction of Forum Energy i.e., Forum Energy and Flotek Industries go up and down completely randomly.

Pair Corralation between Forum Energy and Flotek Industries

Considering the 90-day investment horizon Forum Energy Technologies is expected to generate 1.25 times more return on investment than Flotek Industries. However, Forum Energy is 1.25 times more volatile than Flotek Industries. It trades about 0.06 of its potential returns per unit of risk. Flotek Industries is currently generating about -0.04 per unit of risk. If you would invest  1,908  in Forum Energy Technologies on January 25, 2024 and sell it today you would earn a total of  42.00  from holding Forum Energy Technologies or generate 2.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Forum Energy Technologies  vs.  Flotek Industries

Forum Energy Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Forum Energy Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Flotek Industries

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Flotek Industries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Flotek Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Forum Energy and Flotek Industries

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

The idea behind Forum Energy Technologies and Flotek Industries 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.