Correlation Between Sapphire Foods and United Drilling

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

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

Diversification Opportunities for Sapphire Foods and United Drilling

0.07

Correlation Coefficient

Sapphire Foods  United Drilling

Significant diversification

The 3 months correlation between Sapphire and United is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Sapphire Foods India 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 Sapphire Foods 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 Sapphire Foods India 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 Sapphire Foods i.e., Sapphire Foods and United Drilling go up and down completely randomly.

Pair Corralation between Sapphire Foods and United Drilling

Assuming the 90 days trading horizon Sapphire Foods India is expected to generate 0.94 times more return on investment than United Drilling. However, Sapphire Foods India is 1.06 times less risky than United Drilling. It trades about 0.0 of its potential returns per unit of risk. United Drilling Tools is currently generating about -0.01 per unit of risk. If you would invest  33,087  in Sapphire Foods India on September 2, 2024 and sell it today you would lose (467.00) from holding Sapphire Foods India or give up 1.41% of portfolio value over 90 days.

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

Sapphire Foods India  vs.  United Drilling Tools

Sapphire Foods India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sapphire Foods India has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Sapphire Foods is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

United Drilling Tools

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Drilling Tools has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, United Drilling is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Sapphire Foods and United Drilling

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

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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 Anywhere module to track or share privately all of your investments from the convenience of any device.