Correlation Between Tenaris SA and Drilling Tools

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

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

Diversification Opportunities for Tenaris SA and Drilling Tools

-0.21

Correlation Coefficient

Tenaris SA  Drilling Tools

Very good diversification

The 3 months correlation between Tenaris and Drilling is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Tenaris SA ADR 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 Tenaris SA 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 Tenaris SA ADR 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 Tenaris SA i.e., Tenaris SA and Drilling Tools go up and down completely randomly.

Pair Corralation between Tenaris SA and Drilling Tools

Allowing for the 90-day total investment horizon Tenaris SA ADR is expected to generate 0.54 times more return on investment than Drilling Tools. However, Tenaris SA ADR is 1.87 times less risky than Drilling Tools. It trades about 0.17 of its potential returns per unit of risk. Drilling Tools International is currently generating about -0.04 per unit of risk. If you would invest  3,193  in Tenaris SA ADR on October 6, 2024 and sell it today you would earn a total of  583.00  from holding Tenaris SA ADR or generate 18.26% return on investment over 90 days.

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

Tenaris SA ADR  vs.  Drilling Tools International

Tenaris SA ADR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tenaris SA ADR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Tenaris SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Drilling Tools Inter

Risk-Adjusted Performance

0 of 100

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 weak 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 Tenaris SA and Drilling Tools

The main advantage of trading using opposite Tenaris SA and Drilling Tools positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tenaris SA 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 Tenaris SA ADR 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.