Correlation Between United States and Patterson Companies

Can any of the company-specific risk be diversified away by investing in both United States and Patterson Companies 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 States and Patterson Companies into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between United States Steel and Patterson Companies, you can compare the effects of market volatilities on United States and Patterson Companies 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 States with a short position of Patterson Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of United States and Patterson Companies.

Diversification Opportunities for United States and Patterson Companies

0.02

Correlation Coefficient

United States  Patterson Companies

Significant diversification

The 3 months correlation between United and Patterson is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Patterson Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Patterson Companies and United States 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 States Steel are associated (or correlated) with Patterson Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Patterson Companies has no effect on the direction of United States i.e., United States and Patterson Companies go up and down completely randomly.

Pair Corralation between United States and Patterson Companies

Assuming the 90 days trading horizon United States Steel is expected to generate 3.08 times more return on investment than Patterson Companies. However, United States is 3.08 times more volatile than Patterson Companies. It trades about 0.17 of its potential returns per unit of risk. Patterson Companies is currently generating about -0.05 per unit of risk. If you would invest  2,887  in United States Steel on December 22, 2024 and sell it today you would earn a total of  916.00  from holding United States Steel or generate 31.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

United States Steel  vs.  Patterson Companies

United States Steel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United States Steel are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, United States reported solid returns over the last few months and may actually be approaching a breakup point.

Patterson Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Patterson Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Patterson Companies is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with United States and Patterson Companies

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

The idea behind United States Steel and Patterson Companies 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.