Correlation Between Nabors Industries and Precision Drilling

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

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

Diversification Opportunities for Nabors Industries and Precision Drilling

0.94

Correlation Coefficient

Nabors Industries  Precision Drilling

Almost no diversification

The 3 months correlation between Nabors and Precision is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Nabors Industries and Precision Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precision Drilling and Nabors Industries 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 Nabors Industries 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 Nabors Industries i.e., Nabors Industries and Precision Drilling go up and down completely randomly.

Pair Corralation between Nabors Industries and Precision Drilling

Considering the 90-day investment horizon Nabors Industries is expected to generate 1.71 times more return on investment than Precision Drilling. However, Nabors Industries is 1.71 times more volatile than Precision Drilling. It trades about -0.08 of its potential returns per unit of risk. Precision Drilling is currently generating about -0.17 per unit of risk. If you would invest  5,425  in Nabors Industries on December 29, 2024 and sell it today you would lose (1,120) from holding Nabors Industries or give up 20.65% of portfolio value over 90 days.

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

Nabors Industries  vs.  Precision Drilling

Nabors Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nabors Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's fundamental drivers remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Precision Drilling

Risk-Adjusted Performance

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 weak performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Nabors Industries and Precision Drilling

The main advantage of trading using opposite Nabors Industries and Precision Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nabors Industries 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 Nabors Industries 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.