Correlation Between Nabors Industries and PSI All

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

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

Diversification Opportunities for Nabors Industries and PSI All

0.6

Correlation Coefficient

Nabors Industries  PSI All

Poor diversification

The 3 months correlation between Nabors and PSI is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Nabors Industries and PSI All Share in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PSI All Share and Nabors Industries 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 Nabors Industries are associated (or correlated) with PSI All. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PSI All Share has no effect on the direction of Nabors Industries i.e., Nabors Industries and PSI All go up and down completely randomly.

Pair Corralation between Nabors Industries and PSI All

Considering the 90-day investment horizon Nabors Industries is expected to under-perform the PSI All. In addition to that, Nabors Industries is 3.54 times more volatile than PSI All Share. It trades about -0.08 of its total potential returns per unit of risk. PSI All Share is currently generating about -0.16 per unit of volatility. If you would invest  457,776  in PSI All Share on October 10, 2024 and sell it today you would lose (40,405) from holding PSI All Share or give up 8.83% of portfolio value over 90 days.

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

Nabors Industries  vs.  PSI All Share

Pair Trading with Nabors Industries and PSI All

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

The idea behind Nabors Industries and PSI All Share 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.