Correlation Between Drilling Tools and Core Laboratories

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

Diversification Opportunities for Drilling Tools and Core Laboratories

0.74

Correlation Coefficient

Drilling Tools  Core Laboratories

Poor diversification

The 3 months correlation between Drilling and Core is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Drilling Tools International and Core Laboratories NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Laboratories 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 Core Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Laboratories has no effect on the direction of Drilling Tools i.e., Drilling Tools and Core Laboratories go up and down completely randomly.

Pair Corralation between Drilling Tools and Core Laboratories

Considering the 90-day investment horizon Drilling Tools International is expected to generate 1.17 times more return on investment than Core Laboratories. However, Drilling Tools is 1.17 times more volatile than Core Laboratories NV. It trades about -0.04 of its potential returns per unit of risk. Core Laboratories NV is currently generating about -0.06 per unit of risk. If you would invest  311.00  in Drilling Tools International on December 28, 2024 and sell it today you would lose (35.00) from holding Drilling Tools International or give up 11.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Drilling Tools International  vs.  Core Laboratories NV

Drilling Tools Inter

Risk-Adjusted Performance

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 unsteady 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.

Core Laboratories

Risk-Adjusted Performance

Very Weak

Over the last 90 days Core Laboratories NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Drilling Tools and Core Laboratories

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

The idea behind Drilling Tools International and Core Laboratories NV 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.