Correlation Between Nike and Drilling Tools

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

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

Diversification Opportunities for Nike and Drilling Tools

0.24

Correlation Coefficient

Nike  Drilling Tools

Modest diversification

The 3 months correlation between Nike and Drilling is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc 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 Nike 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 Nike Inc 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 Nike i.e., Nike and Drilling Tools go up and down completely randomly.

Pair Corralation between Nike and Drilling Tools

Considering the 90-day investment horizon Nike Inc is expected to under-perform the Drilling Tools. But the stock apears to be less risky and, when comparing its historical volatility, Nike Inc is 1.59 times less risky than Drilling Tools. The stock trades about -0.09 of its potential returns per unit of risk. The Drilling Tools International is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  311.00  in Drilling Tools International on December 28, 2024 and sell it today you would lose (35.00) from holding Drilling Tools International or give up 11.25% of portfolio value over 90 days.

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

Nike Inc  vs.  Drilling Tools International

Nike Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nike Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's forward-looking signals remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Drilling Tools Inter

Risk-Adjusted Performance

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 Nike and Drilling Tools

The main advantage of trading using opposite Nike and Drilling Tools positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nike 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 Nike Inc 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.