Correlation Between United Drilling and Pilani Investment

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

Diversification Opportunities for United Drilling and Pilani Investment

0.84

Correlation Coefficient

United Drilling  Pilani Investment

Very poor diversification

The 3 months correlation between United and Pilani is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding United Drilling Tools and Pilani Investment and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pilani Investment 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 Pilani Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pilani Investment has no effect on the direction of United Drilling i.e., United Drilling and Pilani Investment go up and down completely randomly.

Pair Corralation between United Drilling and Pilani Investment

Assuming the 90 days trading horizon United Drilling Tools is expected to generate 0.88 times more return on investment than Pilani Investment. However, United Drilling Tools is 1.13 times less risky than Pilani Investment. It trades about -0.1 of its potential returns per unit of risk. Pilani Investment and is currently generating about -0.15 per unit of risk. If you would invest  26,374  in United Drilling Tools on December 27, 2024 and sell it today you would lose (4,631) from holding United Drilling Tools or give up 17.56% of portfolio value over 90 days.

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

United Drilling Tools  vs.  Pilani Investment and

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 weak performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pilani Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pilani Investment and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with United Drilling and Pilani Investment

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

The idea behind United Drilling Tools and Pilani Investment and 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.