Correlation Between Precision Drilling and NextSource Materials

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

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

Diversification Opportunities for Precision Drilling and NextSource Materials

-0.34

Correlation Coefficient

Precision Drilling  NextSource Materials

Very good diversification

The 3 months correlation between Precision and NextSource is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Precision Drilling and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials 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 NextSource Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextSource Materials has no effect on the direction of Precision Drilling i.e., Precision Drilling and NextSource Materials go up and down completely randomly.

Pair Corralation between Precision Drilling and NextSource Materials

Assuming the 90 days horizon Precision Drilling is expected to generate 0.6 times more return on investment than NextSource Materials. However, Precision Drilling is 1.67 times less risky than NextSource Materials. It trades about 0.0 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.05 per unit of risk. If you would invest  10,117  in Precision Drilling on September 18, 2024 and sell it today you would lose (1,691) from holding Precision Drilling or give up 16.71% of portfolio value over 90 days.

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

Precision Drilling  vs.  NextSource Materials

Precision Drilling

Risk-Adjusted Performance

0 of 100

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 very healthy basic indicators, Precision Drilling is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

NextSource Materials

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Precision Drilling and NextSource Materials

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

The idea behind Precision Drilling and NextSource Materials 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.