Correlation Between Drilling Tools and ChampionX

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

Diversification Opportunities for Drilling Tools and ChampionX

0.78

Correlation Coefficient

Drilling Tools  ChampionX

Poor diversification

The 3 months correlation between Drilling and ChampionX is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Drilling Tools International and ChampionX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChampionX 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 ChampionX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChampionX has no effect on the direction of Drilling Tools i.e., Drilling Tools and ChampionX go up and down completely randomly.

Pair Corralation between Drilling Tools and ChampionX

Considering the 90-day investment horizon Drilling Tools International is expected to generate 1.41 times more return on investment than ChampionX. However, Drilling Tools is 1.41 times more volatile than ChampionX. It trades about -0.06 of its potential returns per unit of risk. ChampionX is currently generating about -0.24 per unit of risk. If you would invest  355.00  in Drilling Tools International on October 6, 2024 and sell it today you would lose (12.00) from holding Drilling Tools International or give up 3.38% of portfolio value over 90 days.

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

Drilling Tools International  vs.  ChampionX

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 latest weak performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

ChampionX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ChampionX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Drilling Tools and ChampionX

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

The idea behind Drilling Tools International and ChampionX 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.