Correlation Between Halliburton and US Bancorp

Can any of the company-specific risk be diversified away by investing in both Halliburton and US Bancorp 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 Halliburton and US Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Halliburton and US Bancorp, you can compare the effects of market volatilities on Halliburton and US Bancorp 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 Halliburton with a short position of US Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Halliburton and US Bancorp.

Diversification Opportunities for Halliburton and US Bancorp

0.25

Correlation Coefficient

Halliburton  US Bancorp

Modest diversification

The 3 months correlation between Halliburton and USB is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Halliburton and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp and Halliburton 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 Halliburton are associated (or correlated) with US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Halliburton i.e., Halliburton and US Bancorp go up and down completely randomly.

Pair Corralation between Halliburton and US Bancorp

Assuming the 90 days trading horizon Halliburton is expected to under-perform the US Bancorp. In addition to that, Halliburton is 2.81 times more volatile than US Bancorp. It trades about -0.29 of its total potential returns per unit of risk. US Bancorp is currently generating about -0.04 per unit of volatility. If you would invest  101,550  in US Bancorp on September 23, 2024 and sell it today you would lose (1,100) from holding US Bancorp or give up 1.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Halliburton  vs.  US Bancorp

Halliburton

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Halliburton has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak 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.

US Bancorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US Bancorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, US Bancorp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Halliburton and US Bancorp

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

The idea behind Halliburton and US Bancorp 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.