Correlation Between United Drilling and Digjam

Can any of the company-specific risk be diversified away by investing in both United Drilling and Digjam 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 Digjam 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 Digjam Limited, you can compare the effects of market volatilities on United Drilling and Digjam 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 Digjam. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Drilling and Digjam.

Diversification Opportunities for United Drilling and Digjam

-0.19

Correlation Coefficient

United Drilling  Digjam

Good diversification

The 3 months correlation between United and Digjam is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding United Drilling Tools and Digjam Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digjam 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 Digjam. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digjam Limited has no effect on the direction of United Drilling i.e., United Drilling and Digjam go up and down completely randomly.

Pair Corralation between United Drilling and Digjam

Assuming the 90 days trading horizon United Drilling Tools is expected to generate 0.96 times more return on investment than Digjam. However, United Drilling Tools is 1.04 times less risky than Digjam. It trades about -0.09 of its potential returns per unit of risk. Digjam Limited is currently generating about -0.54 per unit of risk. If you would invest  27,980  in United Drilling Tools on October 10, 2024 and sell it today you would lose (1,565) from holding United Drilling Tools or give up 5.59% of portfolio value over 90 days.

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

United Drilling Tools  vs.  Digjam Limited

United Drilling Tools

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in United Drilling Tools are ranked lower than 6 (%) 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.

Digjam Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Digjam Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's primary indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with United Drilling and Digjam

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

The idea behind United Drilling Tools and Digjam 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.

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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.