Correlation Between United Drilling and Lotus Eye

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

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

Diversification Opportunities for United Drilling and Lotus Eye

0.58

Correlation Coefficient

United Drilling  Lotus Eye

Very weak diversification

The 3 months correlation between United and Lotus is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding United Drilling Tools and Lotus Eye Hospital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotus Eye Hospital and United Drilling 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 United Drilling Tools are associated (or correlated) with Lotus Eye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotus Eye Hospital has no effect on the direction of United Drilling i.e., United Drilling and Lotus Eye go up and down completely randomly.

Pair Corralation between United Drilling and Lotus Eye

Assuming the 90 days trading horizon United Drilling is expected to generate 2.45 times less return on investment than Lotus Eye. But when comparing it to its historical volatility, United Drilling Tools is 1.07 times less risky than Lotus Eye. It trades about 0.07 of its potential returns per unit of risk. Lotus Eye Hospital is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  6,825  in Lotus Eye Hospital on September 5, 2024 and sell it today you would earn a total of  592.00  from holding Lotus Eye Hospital or generate 8.67% return on investment over 90 days.

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

United Drilling Tools  vs.  Lotus Eye Hospital

United Drilling Tools

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Drilling Tools has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Lotus Eye Hospital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lotus Eye Hospital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Lotus Eye is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with United Drilling and Lotus Eye

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

The idea behind United Drilling Tools and Lotus Eye Hospital 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.