Correlation Between Maple Leaf and Precision Drilling

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

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

Diversification Opportunities for Maple Leaf and Precision Drilling

0.4

Correlation Coefficient

Maple Leaf  Precision Drilling

Very weak diversification

The 3 months correlation between Maple and Precision is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Maple Leaf Foods and Precision Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precision Drilling and Maple Leaf 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 Maple Leaf Foods 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 Maple Leaf i.e., Maple Leaf and Precision Drilling go up and down completely randomly.

Pair Corralation between Maple Leaf and Precision Drilling

Assuming the 90 days trading horizon Maple Leaf Foods is expected to under-perform the Precision Drilling. But the stock apears to be less risky and, when comparing its historical volatility, Maple Leaf Foods is 1.33 times less risky than Precision Drilling. The stock trades about -0.39 of its potential returns per unit of risk. The Precision Drilling is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  8,568  in Precision Drilling on October 8, 2024 and sell it today you would earn a total of  641.00  from holding Precision Drilling or generate 7.48% return on investment over 90 days.

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

Maple Leaf Foods  vs.  Precision Drilling

Maple Leaf Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Maple Leaf Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Maple Leaf is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Precision Drilling

Risk-Adjusted Performance

5 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Precision Drilling are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Precision Drilling may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Maple Leaf and Precision Drilling

The main advantage of trading using opposite Maple Leaf and Precision Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Maple Leaf 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 Maple Leaf Foods 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.