Correlation Between IDBI Bank and United Drilling

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

By analyzing existing cross correlation between IDBI Bank Limited and United Drilling Tools, you can compare the effects of market volatilities on IDBI Bank and United Drilling 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 IDBI Bank with a short position of United Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of IDBI Bank and United Drilling.

Diversification Opportunities for IDBI Bank and United Drilling

0.35

Correlation Coefficient

IDBI Bank  United Drilling

Weak diversification

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

Pair Corralation between IDBI Bank and United Drilling

Assuming the 90 days trading horizon IDBI Bank Limited is expected to generate 1.38 times more return on investment than United Drilling. However, IDBI Bank is 1.38 times more volatile than United Drilling Tools. It trades about 0.02 of its potential returns per unit of risk. United Drilling Tools is currently generating about -0.14 per unit of risk. If you would invest  7,649  in IDBI Bank Limited on December 31, 2024 and sell it today you would earn a total of  121.00  from holding IDBI Bank Limited or generate 1.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

IDBI Bank Limited  vs.  United Drilling Tools

IDBI Bank Limited

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in IDBI Bank Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IDBI Bank is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

United Drilling Tools

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Drilling Tools has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in May 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with IDBI Bank and United Drilling

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

The idea behind IDBI Bank Limited and United Drilling Tools 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.