Correlation Between Digjam and United Drilling

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

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

Diversification Opportunities for Digjam and United Drilling

0.4

Correlation Coefficient

Digjam  United Drilling

Very weak diversification

The 3 months correlation between Digjam and United is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Digjam Limited 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 Digjam 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 Digjam Limited 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 Digjam i.e., Digjam and United Drilling go up and down completely randomly.

Pair Corralation between Digjam and United Drilling

Assuming the 90 days trading horizon Digjam is expected to generate 2.67 times less return on investment than United Drilling. But when comparing it to its historical volatility, Digjam Limited is 1.02 times less risky than United Drilling. It trades about 0.13 of its potential returns per unit of risk. United Drilling Tools is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  23,126  in United Drilling Tools on September 14, 2024 and sell it today you would earn a total of  4,574  from holding United Drilling Tools or generate 19.78% return on investment over 90 days.

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

Digjam Limited  vs.  United Drilling Tools

Digjam Limited

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Digjam Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent primary indicators, Digjam is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

United Drilling Tools

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United Drilling Tools are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting forward indicators, United Drilling may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Digjam and United Drilling

The main advantage of trading using opposite Digjam and United Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Digjam 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 Digjam Limited 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.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.