Correlation Between United Drilling and IDBI Bank

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

Diversification Opportunities for United Drilling and IDBI Bank

0.35

Correlation Coefficient

United Drilling  IDBI Bank

Weak diversification

The 3 months correlation between United and IDBI is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding United Drilling Tools and IDBI Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDBI 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 IDBI Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IDBI Bank Limited has no effect on the direction of United Drilling i.e., United Drilling and IDBI Bank go up and down completely randomly.

Pair Corralation between United Drilling and IDBI Bank

Assuming the 90 days trading horizon United Drilling Tools is expected to under-perform the IDBI Bank. But the stock apears to be less risky and, when comparing its historical volatility, United Drilling Tools is 1.38 times less risky than IDBI Bank. The stock trades about -0.14 of its potential returns per unit of risk. The IDBI Bank Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  7,649  in IDBI Bank Limited on December 31, 2024 and sell it today you would earn a total of  121.00  from holding IDBI Bank Limited or generate 1.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

United Drilling Tools  vs.  IDBI Bank Limited

United Drilling Tools

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Drilling Tools has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in May 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

IDBI Bank Limited

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in IDBI Bank Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IDBI Bank is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with United Drilling and IDBI Bank

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

The idea behind United Drilling Tools and IDBI 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.