Correlation Between Natural Gas and Drilling Tools

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

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

Diversification Opportunities for Natural Gas and Drilling Tools

-0.03

Correlation Coefficient

Natural Gas  Drilling Tools

Good diversification

The 3 months correlation between Natural and Drilling is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Natural Gas Services and Drilling Tools International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Drilling Tools Inter and Natural Gas 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 Natural Gas Services are associated (or correlated) with Drilling Tools. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Drilling Tools Inter has no effect on the direction of Natural Gas i.e., Natural Gas and Drilling Tools go up and down completely randomly.

Pair Corralation between Natural Gas and Drilling Tools

Considering the 90-day investment horizon Natural Gas Services is expected to generate 1.41 times more return on investment than Drilling Tools. However, Natural Gas is 1.41 times more volatile than Drilling Tools International. It trades about -0.03 of its potential returns per unit of risk. Drilling Tools International is currently generating about -0.17 per unit of risk. If you would invest  2,760  in Natural Gas Services on October 4, 2024 and sell it today you would lose (80.00) from holding Natural Gas Services or give up 2.9% of portfolio value over 90 days.

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

Natural Gas Services  vs.  Drilling Tools International

Natural Gas Services

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Gas Services are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Natural Gas unveiled solid returns over the last few months and may actually be approaching a breakup point.

Drilling Tools Inter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Drilling Tools International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Natural Gas and Drilling Tools

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

The idea behind Natural Gas Services and Drilling Tools International 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.