Correlation Between Willis Lease and Drilling Tools

Can any of the company-specific risk be diversified away by investing in both Willis Lease and Drilling Tools 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 Willis Lease and Drilling Tools into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Willis Lease Finance and Drilling Tools International, you can compare the effects of market volatilities on Willis Lease and Drilling Tools 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 Willis Lease with a short position of Drilling Tools. Check out your portfolio center. Please also check ongoing floating volatility patterns of Willis Lease and Drilling Tools.

Diversification Opportunities for Willis Lease and Drilling Tools

0.67

Correlation Coefficient

Willis Lease  Drilling Tools

Poor diversification

The 3 months correlation between Willis and Drilling is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Willis Lease Finance and Drilling Tools International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Drilling Tools Inter and Willis Lease 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 Willis Lease Finance are associated (or correlated) with Drilling Tools. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Drilling Tools Inter has no effect on the direction of Willis Lease i.e., Willis Lease and Drilling Tools go up and down completely randomly.

Pair Corralation between Willis Lease and Drilling Tools

Given the investment horizon of 90 days Willis Lease Finance is expected to generate 1.17 times more return on investment than Drilling Tools. However, Willis Lease is 1.17 times more volatile than Drilling Tools International. It trades about -0.02 of its potential returns per unit of risk. Drilling Tools International is currently generating about -0.07 per unit of risk. If you would invest  20,479  in Willis Lease Finance on December 20, 2024 and sell it today you would lose (1,789) from holding Willis Lease Finance or give up 8.74% of portfolio value over 90 days.

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

Willis Lease Finance  vs.  Drilling Tools International

Willis Lease Finance

Risk-Adjusted Performance

Very Weak

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

Drilling Tools Inter

Risk-Adjusted Performance

Very Weak

Over the last 90 days Drilling Tools International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating 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 Willis Lease and Drilling Tools

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

The idea behind Willis Lease Finance and Drilling Tools International 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 Anywhere module to track or share privately all of your investments from the convenience of any device.