Correlation Between Valaris and Patterson UTI

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

By analyzing existing cross correlation between Valaris and Patterson UTI Energy, you can compare the effects of market volatilities on Valaris and Patterson UTI 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 Valaris with a short position of Patterson UTI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Valaris and Patterson UTI.

Diversification Opportunities for Valaris and Patterson UTI

0.15

Correlation Coefficient

Valaris  Patterson UTI

Average diversification

The 3 months correlation between Valaris and Patterson is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Valaris and Patterson UTI Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Patterson UTI Energy and Valaris 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 Valaris are associated (or correlated) with Patterson UTI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Patterson UTI Energy has no effect on the direction of Valaris i.e., Valaris and Patterson UTI go up and down completely randomly.

Pair Corralation between Valaris and Patterson UTI

Considering the 90-day investment horizon Valaris is expected to under-perform the Patterson UTI. But the stock apears to be less risky and, when comparing its historical volatility, Valaris is 1.08 times less risky than Patterson UTI. The stock trades about -0.15 of its potential returns per unit of risk. The Patterson UTI Energy is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  832.00  in Patterson UTI Energy on September 17, 2024 and sell it today you would lose (60.00) from holding Patterson UTI Energy or give up 7.21% of portfolio value over 90 days.

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

Valaris  vs.  Patterson UTI Energy

Valaris

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valaris 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 quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Patterson UTI Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Patterson UTI Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Patterson UTI is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Valaris and Patterson UTI

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

The idea behind Valaris and Patterson UTI Energy 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.