Correlation Between United Drilling and CSB Bank

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

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

Diversification Opportunities for United Drilling and CSB Bank

0.55

Correlation Coefficient

United Drilling  CSB Bank

Very weak diversification

The 3 months correlation between United and CSB is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding United Drilling Tools and CSB Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSB Bank Limited and United Drilling 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 United Drilling Tools are associated (or correlated) with CSB Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSB Bank Limited has no effect on the direction of United Drilling i.e., United Drilling and CSB Bank go up and down completely randomly.

Pair Corralation between United Drilling and CSB Bank

Assuming the 90 days trading horizon United Drilling Tools is expected to under-perform the CSB Bank. But the stock apears to be less risky and, when comparing its historical volatility, United Drilling Tools is 1.01 times less risky than CSB Bank. The stock trades about -0.26 of its potential returns per unit of risk. The CSB Bank Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  30,665  in CSB Bank Limited on October 9, 2024 and sell it today you would earn a total of  605.00  from holding CSB Bank Limited or generate 1.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

United Drilling Tools  vs.  CSB Bank Limited

United Drilling Tools

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United Drilling Tools are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting forward indicators, United Drilling may actually be approaching a critical reversion point that can send shares even higher in February 2025.

CSB Bank Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSB Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, CSB Bank is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with United Drilling and CSB Bank

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

The idea behind United Drilling Tools and CSB Bank Limited 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.