Correlation Between Select Energy and Sasol

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

Diversification Opportunities for Select Energy and Sasol

-0.01

Correlation Coefficient

Select Energy  Sasol

Good diversification

The 3 months correlation between Select and Sasol is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Select Energy Services and Sasol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sasol 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 Sasol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sasol has no effect on the direction of Select Energy i.e., Select Energy and Sasol go up and down completely randomly.

Pair Corralation between Select Energy and Sasol

Given the investment horizon of 90 days Select Energy Services is expected to generate 0.79 times more return on investment than Sasol. However, Select Energy Services is 1.26 times less risky than Sasol. It trades about 0.17 of its potential returns per unit of risk. Sasol is currently generating about -0.04 per unit of risk. If you would invest  778.00  in Select Energy Services on February 16, 2024 and sell it today you would earn a total of  207.00  from holding Select Energy Services or generate 26.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Select Energy Services  vs.  Sasol

Select Energy Services

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Select Energy Services are ranked lower than 12 (%) 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.

Sasol

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sasol has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Select Energy and Sasol

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

The idea behind Select Energy Services and Sasol 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.