Correlation Between Oil States and Drilling Tools

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

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

Diversification Opportunities for Oil States and Drilling Tools

0.54

Correlation Coefficient

Oil States  Drilling Tools

Very weak diversification

The 3 months correlation between Oil and Drilling is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Oil States International 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 Oil 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 Oil States International 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 Oil States i.e., Oil States and Drilling Tools go up and down completely randomly.

Pair Corralation between Oil States and Drilling Tools

Considering the 90-day investment horizon Oil States International is expected to generate 1.49 times more return on investment than Drilling Tools. However, Oil States is 1.49 times more volatile than Drilling Tools International. It trades about 0.12 of its potential returns per unit of risk. Drilling Tools International is currently generating about -0.14 per unit of risk. If you would invest  481.00  in Oil States International on August 13, 2024 and sell it today you would earn a total of  44.00  from holding Oil States International or generate 9.15% return on investment over 90 days.

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

Oil States International  vs.  Drilling Tools International

Oil States International

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Oil States International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Oil States may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Drilling Tools Inter

Risk-Adjusted Performance

0 of 100

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 abnormal performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Oil States and Drilling Tools

The main advantage of trading using opposite Oil States and Drilling Tools positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oil States 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 Oil States International 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.