Correlation Between Drilling Tools and Energy

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

Diversification Opportunities for Drilling Tools and Energy

0.44

Correlation Coefficient

Drilling Tools  Energy

Very weak diversification

The 3 months correlation between Drilling and Energy is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Drilling Tools International and Energy and Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy and Environmental 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 Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy and Environmental has no effect on the direction of Drilling Tools i.e., Drilling Tools and Energy go up and down completely randomly.

Pair Corralation between Drilling Tools and Energy

Considering the 90-day investment horizon Drilling Tools International is expected to under-perform the Energy. But the stock apears to be less risky and, when comparing its historical volatility, Drilling Tools International is 2.09 times less risky than Energy. The stock trades about -0.04 of its potential returns per unit of risk. The Energy and Environmental is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  19.00  in Energy and Environmental on October 23, 2024 and sell it today you would lose (12.00) from holding Energy and Environmental or give up 63.16% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Drilling Tools International  vs.  Energy and Environmental

Drilling Tools Inter

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Drilling Tools International are ranked lower than 3 (%) 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 current stock price confusion, may contribute to short-horizon losses for the traders.

Energy and Environmental

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Energy and Environmental are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Drilling Tools and Energy

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

The idea behind Drilling Tools International and Energy and Environmental 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.