Correlation Between Kaiser Aluminum and Precision Drilling

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

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

Diversification Opportunities for Kaiser Aluminum and Precision Drilling

0.27

Correlation Coefficient

Kaiser Aluminum  Precision Drilling

Modest diversification

The 3 months correlation between Kaiser and Precision is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Kaiser Aluminum and Precision Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precision Drilling and Kaiser Aluminum 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 Kaiser Aluminum are associated (or correlated) with Precision Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precision Drilling has no effect on the direction of Kaiser Aluminum i.e., Kaiser Aluminum and Precision Drilling go up and down completely randomly.

Pair Corralation between Kaiser Aluminum and Precision Drilling

Given the investment horizon of 90 days Kaiser Aluminum is expected to generate 1.19 times more return on investment than Precision Drilling. However, Kaiser Aluminum is 1.19 times more volatile than Precision Drilling. It trades about -0.04 of its potential returns per unit of risk. Precision Drilling is currently generating about -0.06 per unit of risk. If you would invest  8,594  in Kaiser Aluminum on September 23, 2024 and sell it today you would lose (1,616) from holding Kaiser Aluminum or give up 18.8% of portfolio value over 90 days.

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

Kaiser Aluminum  vs.  Precision Drilling

Kaiser Aluminum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kaiser Aluminum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Kaiser Aluminum is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Precision Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Precision Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Kaiser Aluminum and Precision Drilling

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

The idea behind Kaiser Aluminum and Precision Drilling 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 Transaction History module to view history of all your transactions and understand their impact on performance.