Correlation Between North American and Drilling Tools

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

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

Diversification Opportunities for North American and Drilling Tools

0.79

Correlation Coefficient

North American  Drilling Tools

Poor diversification

The 3 months correlation between North and Drilling is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction 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 North American 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 North American Construction 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 North American i.e., North American and Drilling Tools go up and down completely randomly.

Pair Corralation between North American and Drilling Tools

Considering the 90-day investment horizon North American Construction is expected to under-perform the Drilling Tools. But the stock apears to be less risky and, when comparing its historical volatility, North American Construction is 2.29 times less risky than Drilling Tools. The stock trades about -0.05 of its potential returns per unit of risk. The Drilling Tools International is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  221.00  in Drilling Tools International on May 7, 2025 and sell it today you would lose (4.00) from holding Drilling Tools International or give up 1.81% of portfolio value over 90 days.

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

North American Construction  vs.  Drilling Tools International

North American Const

Risk-Adjusted Performance

Weakest

Over the last 90 days North American Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, North American is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Drilling Tools Inter

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Drilling Tools International are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Drilling Tools is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with North American and Drilling Tools

The main advantage of trading using opposite North American and Drilling Tools positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American 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 North American Construction 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.