Correlation Between Transport and United Drilling

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

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

Diversification Opportunities for Transport and United Drilling

0.14

Correlation Coefficient

Transport  United Drilling

Average diversification

The 3 months correlation between Transport and United is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Transport of 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 Transport 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 Transport of 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 Transport i.e., Transport and United Drilling go up and down completely randomly.

Pair Corralation between Transport and United Drilling

Assuming the 90 days trading horizon Transport of is expected to generate 1.02 times more return on investment than United Drilling. However, Transport is 1.02 times more volatile than United Drilling Tools. 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  108,405  in Transport of on September 2, 2024 and sell it today you would lose (1,545) from holding Transport of or give up 1.43% of portfolio value over 90 days.

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

Transport of  vs.  United Drilling Tools

Transport

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transport of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Transport is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 Transport and United Drilling

The main advantage of trading using opposite Transport and United Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transport 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 Transport of 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.