Correlation Between Electrosteel Castings and United Drilling

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

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

Diversification Opportunities for Electrosteel Castings and United Drilling

-0.26

Correlation Coefficient

Electrosteel Castings  United Drilling

Very good diversification

The 3 months correlation between Electrosteel and United is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Electrosteel Castings 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 Electrosteel Castings 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 Electrosteel Castings 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 Electrosteel Castings i.e., Electrosteel Castings and United Drilling go up and down completely randomly.

Pair Corralation between Electrosteel Castings and United Drilling

Assuming the 90 days trading horizon Electrosteel Castings Limited is expected to under-perform the United Drilling. In addition to that, Electrosteel Castings is 1.23 times more volatile than United Drilling Tools. It trades about -0.2 of its total potential returns per unit of risk. United Drilling Tools is currently generating about 0.04 per unit of volatility. If you would invest  25,510  in United Drilling Tools on September 29, 2024 and sell it today you would earn a total of  930.00  from holding United Drilling Tools or generate 3.65% return on investment over 90 days.

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

Electrosteel Castings Limited  vs.  United Drilling Tools

Electrosteel Castings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electrosteel Castings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

United Drilling Tools

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in United Drilling Tools are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, United Drilling is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Electrosteel Castings and United Drilling

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

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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.