Correlation Between Drilling Tools and Air Transport

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

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

Diversification Opportunities for Drilling Tools and Air Transport

0.13

Correlation Coefficient

Drilling Tools  Air Transport

Average diversification

The 3 months correlation between Drilling and Air is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Drilling Tools International and Air Transport Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Transport Services and Drilling Tools 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 Drilling Tools International are associated (or correlated) with Air Transport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Transport Services has no effect on the direction of Drilling Tools i.e., Drilling Tools and Air Transport go up and down completely randomly.

Pair Corralation between Drilling Tools and Air Transport

Considering the 90-day investment horizon Drilling Tools is expected to generate 5.43 times less return on investment than Air Transport. But when comparing it to its historical volatility, Drilling Tools International is 1.43 times less risky than Air Transport. It trades about 0.04 of its potential returns per unit of risk. Air Transport Services is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,720  in Air Transport Services on October 26, 2024 and sell it today you would earn a total of  500.00  from holding Air Transport Services or generate 29.07% return on investment over 90 days.

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

Drilling Tools International  vs.  Air Transport Services

Drilling Tools Inter

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Drilling Tools International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Drilling Tools is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Air Transport Services

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air Transport Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Air Transport reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Drilling Tools and Air Transport

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

The idea behind Drilling Tools International and Air Transport 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.