Correlation Between Blue-Chip SBITOP and Delek Drilling

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

By analyzing existing cross correlation between Blue-Chip SBITOP and Delek Drilling , you can compare the effects of market volatilities on Blue-Chip SBITOP and Delek 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 Blue-Chip SBITOP with a short position of Delek Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue-Chip SBITOP and Delek Drilling.

Diversification Opportunities for Blue-Chip SBITOP and Delek Drilling

0.77

Correlation Coefficient

Blue-Chip SBITOP  Delek Drilling

Poor diversification

The 3 months correlation between Blue-Chip and Delek is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Blue-Chip SBITOP and Delek Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Delek Drilling and Blue-Chip SBITOP 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 Blue-Chip SBITOP are associated (or correlated) with Delek Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Delek Drilling has no effect on the direction of Blue-Chip SBITOP i.e., Blue-Chip SBITOP and Delek Drilling go up and down completely randomly.

Pair Corralation between Blue-Chip SBITOP and Delek Drilling

Assuming the 90 days trading horizon Blue-Chip SBITOP is expected to generate 2.05 times less return on investment than Delek Drilling. But when comparing it to its historical volatility, Blue-Chip SBITOP is 3.56 times less risky than Delek Drilling. It trades about 0.1 of its potential returns per unit of risk. Delek Drilling is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  265.00  in Delek Drilling on September 1, 2024 and sell it today you would earn a total of  46.00  from holding Delek Drilling or generate 17.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.21%
Values	Daily Returns

Blue-Chip SBITOP  vs.  Delek Drilling

Pair Trading with Blue-Chip SBITOP and Delek Drilling

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

The idea behind Blue-Chip SBITOP and Delek Drilling 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.