Correlation Between Precision Drilling and Manulife Financial

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

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

Diversification Opportunities for Precision Drilling and Manulife Financial

0.42

Correlation Coefficient

Precision Drilling  Manulife Financial

Very weak diversification

The 3 months correlation between Precision and Manulife is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Precision Drilling and Manulife Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manulife Financial Corp 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 Manulife Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Manulife Financial Corp has no effect on the direction of Precision Drilling i.e., Precision Drilling and Manulife Financial go up and down completely randomly.

Pair Corralation between Precision Drilling and Manulife Financial

Assuming the 90 days horizon Precision Drilling is expected to generate 3.12 times more return on investment than Manulife Financial. However, Precision Drilling is 3.12 times more volatile than Manulife Financial Corp. It trades about 0.11 of its potential returns per unit of risk. Manulife Financial Corp is currently generating about 0.25 per unit of risk. If you would invest  8,289  in Precision Drilling on October 20, 2024 and sell it today you would earn a total of  1,149  from holding Precision Drilling or generate 13.86% return on investment over 90 days.

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

Precision Drilling  vs.  Manulife Financial Corp

Precision Drilling

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Precision Drilling are ranked lower than 8 (%) 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.

Manulife Financial Corp

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Manulife Financial Corp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental indicators, Manulife Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Precision Drilling and Manulife Financial

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

The idea behind Precision Drilling and Manulife Financial Corp 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.

Check out your portfolio center.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.