Correlation Between Precision Drilling and Fairfax Fin

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

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

Diversification Opportunities for Precision Drilling and Fairfax Fin

0.37

Correlation Coefficient

Precision Drilling  Fairfax Fin

Weak diversification

The 3 months correlation between Precision and Fairfax is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Precision Drilling and Fairfax Fin Hld in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Fin Hld and Precision Drilling 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 Precision Drilling are associated (or correlated) with Fairfax Fin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairfax Fin Hld has no effect on the direction of Precision Drilling i.e., Precision Drilling and Fairfax Fin go up and down completely randomly.

Pair Corralation between Precision Drilling and Fairfax Fin

Assuming the 90 days horizon Precision Drilling is expected to generate 2.29 times more return on investment than Fairfax Fin. However, Precision Drilling is 2.29 times more volatile than Fairfax Fin Hld. It trades about 0.12 of its potential returns per unit of risk. Fairfax Fin Hld is currently generating about 0.25 per unit of risk. If you would invest  8,165  in Precision Drilling on October 22, 2024 and sell it today you would earn a total of  1,273  from holding Precision Drilling or generate 15.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	80.65%
Values	Daily Returns

Precision Drilling  vs.  Fairfax Fin Hld

Precision Drilling

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Precision Drilling are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Precision Drilling displayed solid returns over the last few months and may actually be approaching a breakup point.

Fairfax Fin Hld

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Fairfax Fin Hld has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat abnormal technical indicators, Fairfax Fin sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Precision Drilling and Fairfax Fin

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

The idea behind Precision Drilling and Fairfax Fin Hld 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.