Correlation Between United Drilling and EMBASSY OFFICE

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

Diversification Opportunities for United Drilling and EMBASSY OFFICE

-0.21

Correlation Coefficient

United Drilling  EMBASSY OFFICE

Very good diversification

The 3 months correlation between United and EMBASSY is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding United Drilling Tools and EMBASSY OFFICE PARKS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMBASSY OFFICE PARKS 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 EMBASSY OFFICE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMBASSY OFFICE PARKS has no effect on the direction of United Drilling i.e., United Drilling and EMBASSY OFFICE go up and down completely randomly.

Pair Corralation between United Drilling and EMBASSY OFFICE

Assuming the 90 days trading horizon United Drilling Tools is expected to generate 2.33 times more return on investment than EMBASSY OFFICE. However, United Drilling is 2.33 times more volatile than EMBASSY OFFICE PARKS. It trades about 0.06 of its potential returns per unit of risk. EMBASSY OFFICE PARKS is currently generating about -0.04 per unit of risk. If you would invest  25,485  in United Drilling Tools on September 12, 2024 and sell it today you would earn a total of  2,055  from holding United Drilling Tools or generate 8.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

United Drilling Tools  vs.  EMBASSY OFFICE PARKS

United Drilling Tools

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United Drilling Tools are ranked lower than 4 (%) 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 January 2025.

EMBASSY OFFICE PARKS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EMBASSY OFFICE PARKS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, EMBASSY OFFICE is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with United Drilling and EMBASSY OFFICE

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

The idea behind United Drilling Tools and EMBASSY OFFICE PARKS 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.