Correlation Between Applied Industrial and Oil States

Can any of the company-specific risk be diversified away by investing in both Applied Industrial and Oil States 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 Applied Industrial and Oil States into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Applied Industrial Technologies and Oil States International, you can compare the effects of market volatilities on Applied Industrial and Oil States 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 Applied Industrial with a short position of Oil States. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Industrial and Oil States.

Diversification Opportunities for Applied Industrial and Oil States

0.47

Correlation Coefficient

Applied Industrial  Oil States

Very weak diversification

The 3 months correlation between Applied and Oil is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Applied Industrial Technologie and Oil States International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil States International and Applied Industrial 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 Applied Industrial Technologies are associated (or correlated) with Oil States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil States International has no effect on the direction of Applied Industrial i.e., Applied Industrial and Oil States go up and down completely randomly.

Pair Corralation between Applied Industrial and Oil States

Considering the 90-day investment horizon Applied Industrial Technologies is expected to under-perform the Oil States. But the stock apears to be less risky and, when comparing its historical volatility, Applied Industrial Technologies is 1.54 times less risky than Oil States. The stock trades about -0.02 of its potential returns per unit of risk. The Oil States International is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  480.00  in Oil States International on December 27, 2024 and sell it today you would earn a total of  66.00  from holding Oil States International or generate 13.75% return on investment over 90 days.

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

Applied Industrial Technologie  vs.  Oil States International

Applied Industrial

Risk-Adjusted Performance

Very Weak

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

Oil States International

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Oil States International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Oil States unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Applied Industrial and Oil States

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

The idea behind Applied Industrial Technologies and Oil States International 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 the Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.