Correlation Between S P and United Drilling
Can any of the company-specific risk be diversified away by investing in both S P and United Drilling 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 S P and United Drilling into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between S P Apparels and United Drilling Tools, you can compare the effects of market volatilities on S P and United Drilling 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 S P with a short position of United Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of S P and United Drilling.
Diversification Opportunities for S P and United Drilling
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between SPAL and United is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding S P Apparels and United Drilling Tools in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Drilling Tools and S P 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 S P Apparels are associated (or correlated) with United Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Drilling Tools has no effect on the direction of S P i.e., S P and United Drilling go up and down completely randomly.
Pair Corralation between S P and United Drilling
Assuming the 90 days trading horizon S P Apparels is expected to generate 1.52 times more return on investment than United Drilling. However, S P is 1.52 times more volatile than United Drilling Tools. It trades about 0.12 of its potential returns per unit of risk. United Drilling Tools is currently generating about 0.08 per unit of risk. If you would invest 55,735 in S P Apparels on September 2, 2024 and sell it today you would earn a total of 33,115 from holding S P Apparels or generate 59.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
S P Apparels vs. United Drilling Tools
Performance |
| Timeline |
| S P Apparels |
| United Drilling Tools |
S P and United Drilling Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with S P and United Drilling
The main advantage of trading using opposite S P and United Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if S P position performs unexpectedly, United Drilling 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 United Drilling will offset losses from the drop in United Drilling's long position.The idea behind S P Apparels and United Drilling Tools 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.| United Drilling vs. Sarveshwar Foods Limited | United Drilling vs. Jubilant Foodworks Limited | United Drilling vs. LT Foods Limited | United Drilling vs. Gujarat Fluorochemicals Limited |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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