Correlation Between Praxis Home and United Drilling

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

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

Diversification Opportunities for Praxis Home and United Drilling

-0.67

Correlation Coefficient

Praxis Home  United Drilling

Excellent diversification

The 3 months correlation between Praxis and United is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Praxis Home Retail 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 Praxis Home 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 Praxis Home Retail 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 Praxis Home i.e., Praxis Home and United Drilling go up and down completely randomly.

Pair Corralation between Praxis Home and United Drilling

Assuming the 90 days trading horizon Praxis Home Retail is expected to under-perform the United Drilling. In addition to that, Praxis Home is 1.16 times more volatile than United Drilling Tools. It trades about -0.03 of its total potential returns per unit of risk. United Drilling Tools is currently generating about 0.08 per unit of volatility. If you would invest  23,605  in United Drilling Tools on October 11, 2024 and sell it today you would earn a total of  2,570  from holding United Drilling Tools or generate 10.89% return on investment over 90 days.

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

Praxis Home Retail  vs.  United Drilling Tools

Praxis Home Retail

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Praxis Home Retail has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Praxis Home is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

United Drilling Tools

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in United Drilling Tools are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting forward indicators, United Drilling displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Praxis Home and United Drilling

The main advantage of trading using opposite Praxis Home and United Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Praxis Home 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 Praxis Home Retail 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.