Correlation Between Drilling Tools and Select Energy

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

Diversification Opportunities for Drilling Tools and Select Energy

0.35
  Correlation Coefficient

Weak diversification

The 3 months correlation between Drilling and Select is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Drilling Tools International and Select Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Energy 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 Select Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Energy Services has no effect on the direction of Drilling Tools i.e., Drilling Tools and Select Energy go up and down completely randomly.

Pair Corralation between Drilling Tools and Select Energy

Considering the 90-day investment horizon Drilling Tools International is expected to under-perform the Select Energy. In addition to that, Drilling Tools is 1.44 times more volatile than Select Energy Services. It trades about -0.04 of its total potential returns per unit of risk. Select Energy Services is currently generating about 0.06 per unit of volatility. If you would invest  807.00  in Select Energy Services on October 21, 2024 and sell it today you would earn a total of  598.00  from holding Select Energy Services or generate 74.1% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Drilling Tools International  vs.  Select Energy Services

 Performance 
       Timeline  
Drilling Tools Inter 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
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 recent stock price confusion, may contribute to short-horizon losses for the traders.
Select Energy Services 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Select Energy Services are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Select Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Drilling Tools and Select Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Drilling Tools and Select Energy

The main advantage of trading using opposite Drilling Tools and Select Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Drilling Tools position performs unexpectedly, Select 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 Select Energy will offset losses from the drop in Select Energy's long position.
The idea behind Drilling Tools International and Select Energy 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.
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.

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