Correlation Between United Drilling and Gujarat Lease

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

Diversification Opportunities for United Drilling and Gujarat Lease

0.24

Correlation Coefficient

United Drilling  Gujarat Lease

Modest diversification

The 3 months correlation between United and Gujarat is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding United Drilling Tools and Gujarat Lease Financing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gujarat Lease Financing 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 Gujarat Lease. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gujarat Lease Financing has no effect on the direction of United Drilling i.e., United Drilling and Gujarat Lease go up and down completely randomly.

Pair Corralation between United Drilling and Gujarat Lease

Assuming the 90 days trading horizon United Drilling is expected to generate 4.09 times less return on investment than Gujarat Lease. But when comparing it to its historical volatility, United Drilling Tools is 1.05 times less risky than Gujarat Lease. It trades about 0.02 of its potential returns per unit of risk. Gujarat Lease Financing is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  275.00  in Gujarat Lease Financing on October 24, 2024 and sell it today you would earn a total of  562.00  from holding Gujarat Lease Financing or generate 204.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

United Drilling Tools  vs.  Gujarat Lease Financing

United Drilling Tools

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in United Drilling Tools are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, United Drilling is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Gujarat Lease Financing

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gujarat Lease Financing are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Gujarat Lease is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with United Drilling and Gujarat Lease

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

The idea behind United Drilling Tools and Gujarat Lease Financing 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.