Correlation Between Patterson UTI and Nabors Industries

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

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

Diversification Opportunities for Patterson UTI and Nabors Industries

0.43

Correlation Coefficient

Patterson UTI  Nabors Industries

Very weak diversification

The 3 months correlation between Patterson and Nabors is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Patterson UTI Energy and Nabors Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nabors Industries and Patterson UTI 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 Patterson UTI Energy are associated (or correlated) with Nabors Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nabors Industries has no effect on the direction of Patterson UTI i.e., Patterson UTI and Nabors Industries go up and down completely randomly.

Pair Corralation between Patterson UTI and Nabors Industries

Assuming the 90 days horizon Patterson UTI is expected to generate 3.7 times less return on investment than Nabors Industries. But when comparing it to its historical volatility, Patterson UTI Energy is 1.2 times less risky than Nabors Industries. It trades about 0.02 of its potential returns per unit of risk. Nabors Industries is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,700  in Nabors Industries on September 13, 2024 and sell it today you would earn a total of  750.00  from holding Nabors Industries or generate 13.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Patterson UTI Energy  vs.  Nabors Industries

Patterson UTI Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Patterson UTI Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Patterson UTI is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Nabors Industries

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nabors Industries are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady forward indicators, Nabors Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Patterson UTI and Nabors Industries

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

The idea behind Patterson UTI Energy and Nabors Industries 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.