Correlation Between NiSource and Precision Drilling

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

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

Diversification Opportunities for NiSource and Precision Drilling

0.46

Correlation Coefficient

NiSource  Precision Drilling

Very weak diversification

The 3 months correlation between NiSource and Precision is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding NiSource and Precision Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precision Drilling and NiSource 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 NiSource 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 NiSource i.e., NiSource and Precision Drilling go up and down completely randomly.

Pair Corralation between NiSource and Precision Drilling

Allowing for the 90-day total investment horizon NiSource is expected to generate 1.38 times less return on investment than Precision Drilling. But when comparing it to its historical volatility, NiSource is 1.93 times less risky than Precision Drilling. It trades about 0.13 of its potential returns per unit of risk. Precision Drilling is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  5,885  in Precision Drilling on October 25, 2024 and sell it today you would earn a total of  679.00  from holding Precision Drilling or generate 11.54% return on investment over 90 days.

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

NiSource  vs.  Precision Drilling

NiSource

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NiSource are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, NiSource may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Precision Drilling

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Precision Drilling are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Precision Drilling unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NiSource and Precision Drilling

The main advantage of trading using opposite NiSource and Precision Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NiSource 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 NiSource 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.