Correlation Between Precision Drilling and Leons Furniture

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

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

Diversification Opportunities for Precision Drilling and Leons Furniture

0.68

Correlation Coefficient

Precision Drilling  Leons Furniture

Poor diversification

The 3 months correlation between Precision and Leons is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Precision Drilling and Leons Furniture Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leons Furniture 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 Leons Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leons Furniture has no effect on the direction of Precision Drilling i.e., Precision Drilling and Leons Furniture go up and down completely randomly.

Pair Corralation between Precision Drilling and Leons Furniture

Assuming the 90 days horizon Precision Drilling is expected to under-perform the Leons Furniture. In addition to that, Precision Drilling is 1.21 times more volatile than Leons Furniture Limited. It trades about -0.19 of its total potential returns per unit of risk. Leons Furniture Limited is currently generating about -0.05 per unit of volatility. If you would invest  2,530  in Leons Furniture Limited on December 30, 2024 and sell it today you would lose (148.00) from holding Leons Furniture Limited or give up 5.85% of portfolio value over 90 days.

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

Precision Drilling  vs.  Leons Furniture Limited

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 unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Leons Furniture

Risk-Adjusted Performance

Very Weak

Over the last 90 days Leons Furniture Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Leons Furniture is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Precision Drilling and Leons Furniture

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

The idea behind Precision Drilling and Leons Furniture Limited 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.