Correlation Between Oil States and Dawson Geophysical

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

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

Diversification Opportunities for Oil States and Dawson Geophysical

-0.43

Correlation Coefficient

Oil States  Dawson Geophysical

Very good diversification

The 3 months correlation between Oil and Dawson is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Oil States International and Dawson Geophysical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dawson Geophysical and Oil States 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 Oil States International are associated (or correlated) with Dawson Geophysical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dawson Geophysical has no effect on the direction of Oil States i.e., Oil States and Dawson Geophysical go up and down completely randomly.

Pair Corralation between Oil States and Dawson Geophysical

Considering the 90-day investment horizon Oil States International is expected to under-perform the Dawson Geophysical. But the stock apears to be less risky and, when comparing its historical volatility, Oil States International is 1.5 times less risky than Dawson Geophysical. The stock trades about -0.01 of its potential returns per unit of risk. The Dawson Geophysical is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  132.00  in Dawson Geophysical on September 4, 2024 and sell it today you would earn a total of  11.00  from holding Dawson Geophysical or generate 8.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.79%
Values	Daily Returns

Oil States International  vs.  Dawson Geophysical

Oil States International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Oil States International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Oil States unveiled solid returns over the last few months and may actually be approaching a breakup point.

Dawson Geophysical

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dawson Geophysical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Dawson Geophysical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Oil States and Dawson Geophysical

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

The idea behind Oil States International and Dawson Geophysical 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.