Correlation Between United Drilling and Praxis Home

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

Diversification Opportunities for United Drilling and Praxis Home

-0.54

Correlation Coefficient

United Drilling  Praxis Home

Excellent diversification

The 3 months correlation between United and Praxis is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding United Drilling Tools and Praxis Home Retail in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Praxis Home Retail 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 Praxis Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Praxis Home Retail has no effect on the direction of United Drilling i.e., United Drilling and Praxis Home go up and down completely randomly.

Pair Corralation between United Drilling and Praxis Home

Assuming the 90 days trading horizon United Drilling Tools is expected to generate 1.11 times more return on investment than Praxis Home. However, United Drilling is 1.11 times more volatile than Praxis Home Retail. It trades about -0.08 of its potential returns per unit of risk. Praxis Home Retail is currently generating about -0.12 per unit of risk. If you would invest  26,995  in United Drilling Tools on October 26, 2024 and sell it today you would lose (1,500) from holding United Drilling Tools or give up 5.56% of portfolio value over 90 days.

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

United Drilling Tools  vs.  Praxis Home Retail

United Drilling Tools

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United Drilling Tools are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, United Drilling may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Praxis Home Retail

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Praxis Home Retail 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 basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with United Drilling and Praxis Home

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

The idea behind United Drilling Tools and Praxis Home Retail 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..