Correlation Between ITI and United Drilling

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

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

Diversification Opportunities for ITI and United Drilling

0.58

Correlation Coefficient

ITI  United Drilling

Very weak diversification

The 3 months correlation between ITI and United is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding ITI 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 ITI 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 ITI 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 ITI i.e., ITI and United Drilling go up and down completely randomly.

Pair Corralation between ITI and United Drilling

Assuming the 90 days trading horizon ITI Limited is expected to under-perform the United Drilling. In addition to that, ITI is 2.02 times more volatile than United Drilling Tools. It trades about -0.05 of its total potential returns per unit of risk. United Drilling Tools is currently generating about -0.09 per unit of volatility. If you would invest  26,818  in United Drilling Tools on December 22, 2024 and sell it today you would lose (4,076) from holding United Drilling Tools or give up 15.2% of portfolio value over 90 days.

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

ITI Limited  vs.  United Drilling Tools

ITI Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days ITI Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 inconsistent performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with ITI and United Drilling

The main advantage of trading using opposite ITI and United Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ITI 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 ITI 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.