Correlation Between Dawson Geophysical and Liberty Oilfield

Can any of the company-specific risk be diversified away by investing in both Dawson Geophysical and Liberty Oilfield 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 Dawson Geophysical and Liberty Oilfield into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dawson Geophysical and Liberty Oilfield Services, you can compare the effects of market volatilities on Dawson Geophysical and Liberty Oilfield 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 Dawson Geophysical with a short position of Liberty Oilfield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dawson Geophysical and Liberty Oilfield.

Diversification Opportunities for Dawson Geophysical and Liberty Oilfield

0.55

Correlation Coefficient

Dawson Geophysical  Liberty Oilfield

Very weak diversification

The 3 months correlation between Dawson and Liberty is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Dawson Geophysical and Liberty Oilfield Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Oilfield Services and Dawson Geophysical 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 Dawson Geophysical are associated (or correlated) with Liberty Oilfield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Oilfield Services has no effect on the direction of Dawson Geophysical i.e., Dawson Geophysical and Liberty Oilfield go up and down completely randomly.

Pair Corralation between Dawson Geophysical and Liberty Oilfield

Given the investment horizon of 90 days Dawson Geophysical is expected to generate 1.42 times more return on investment than Liberty Oilfield. However, Dawson Geophysical is 1.42 times more volatile than Liberty Oilfield Services. It trades about 0.03 of its potential returns per unit of risk. Liberty Oilfield Services is currently generating about -0.1 per unit of risk. If you would invest  153.00  in Dawson Geophysical on June 29, 2024 and sell it today you would earn a total of  2.00  from holding Dawson Geophysical or generate 1.31% return on investment over 90 days.

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

Dawson Geophysical  vs.  Liberty Oilfield Services

Dawson Geophysical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dawson Geophysical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in October 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Liberty Oilfield Services

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Dawson Geophysical and Liberty Oilfield

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

The idea behind Dawson Geophysical and Liberty Oilfield 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.