Correlation Between Drilling Tools and Oil States

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

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

Diversification Opportunities for Drilling Tools and Oil States

-0.82

Correlation Coefficient

Drilling Tools  Oil States

Pay attention - limited upside

The 3 months correlation between Drilling and Oil is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Drilling Tools International and Oil States International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil States International and Drilling Tools 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 Drilling Tools International are associated (or correlated) with Oil States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil States International has no effect on the direction of Drilling Tools i.e., Drilling Tools and Oil States go up and down completely randomly.

Pair Corralation between Drilling Tools and Oil States

Considering the 90-day investment horizon Drilling Tools International is expected to under-perform the Oil States. But the stock apears to be less risky and, when comparing its historical volatility, Drilling Tools International is 1.13 times less risky than Oil States. The stock trades about -0.02 of its potential returns per unit of risk. The Oil States International is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  542.00  in Oil States International on March 21, 2024 and sell it today you would lose (138.00) from holding Oil States International or give up 25.46% of portfolio value over 90 days.

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

Drilling Tools International  vs.  Oil States International

Drilling Tools Inter

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Drilling Tools International are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Drilling Tools demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Oil States International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oil States International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain comparatively stable which may send shares a bit higher in July 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Drilling Tools and Oil States

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

The idea behind Drilling Tools International and Oil States 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.