Correlation Between Carsales and Drilling Tools

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

By analyzing existing cross correlation between CarsalesCom Ltd ADR and Drilling Tools International, you can compare the effects of market volatilities on Carsales and Drilling Tools 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 Carsales with a short position of Drilling Tools. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and Drilling Tools.

Diversification Opportunities for Carsales and Drilling Tools

0.09

Correlation Coefficient

Carsales  Drilling Tools

Significant diversification

The 3 months correlation between Carsales and Drilling is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom Ltd ADR and Drilling Tools International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Drilling Tools Inter and Carsales 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 CarsalesCom Ltd ADR are associated (or correlated) with Drilling Tools. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Drilling Tools Inter has no effect on the direction of Carsales i.e., Carsales and Drilling Tools go up and down completely randomly.

Pair Corralation between Carsales and Drilling Tools

Assuming the 90 days horizon CarsalesCom Ltd ADR is expected to under-perform the Drilling Tools. In addition to that, Carsales is 1.58 times more volatile than Drilling Tools International. It trades about -0.22 of its total potential returns per unit of risk. Drilling Tools International is currently generating about -0.24 per unit of volatility. If you would invest  366.00  in Drilling Tools International on October 5, 2024 and sell it today you would lose (39.00) from holding Drilling Tools International or give up 10.66% of portfolio value over 90 days.

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

CarsalesCom Ltd ADR  vs.  Drilling Tools International

CarsalesCom ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CarsalesCom Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Drilling Tools Inter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Drilling Tools International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Carsales and Drilling Tools

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

The idea behind CarsalesCom Ltd ADR and Drilling Tools 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.

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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.