Correlation Between Drilling Tools and Tenaris SA

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

Diversification Opportunities for Drilling Tools and Tenaris SA

-0.21

Correlation Coefficient

Drilling Tools  Tenaris SA

Very good diversification

The 3 months correlation between Drilling and Tenaris is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Drilling Tools International and Tenaris SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tenaris SA ADR 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 Tenaris SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tenaris SA ADR has no effect on the direction of Drilling Tools i.e., Drilling Tools and Tenaris SA go up and down completely randomly.

Pair Corralation between Drilling Tools and Tenaris SA

Considering the 90-day investment horizon Drilling Tools International is expected to under-perform the Tenaris SA. In addition to that, Drilling Tools is 1.87 times more volatile than Tenaris SA ADR. It trades about -0.04 of its total potential returns per unit of risk. Tenaris SA ADR is currently generating about 0.17 per unit of volatility. If you would invest  3,193  in Tenaris SA ADR on October 6, 2024 and sell it today you would earn a total of  583.00  from holding Tenaris SA ADR or generate 18.26% return on investment over 90 days.

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

Drilling Tools International  vs.  Tenaris SA ADR

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.

Tenaris SA ADR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tenaris SA ADR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Tenaris SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Drilling Tools and Tenaris SA

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

The idea behind Drilling Tools International and Tenaris SA ADR 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.