Correlation Between Precision Drilling and Richelieu Hardware

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

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

Diversification Opportunities for Precision Drilling and Richelieu Hardware

0.81

Correlation Coefficient

Precision Drilling  Richelieu Hardware

Very poor diversification

The 3 months correlation between Precision and Richelieu is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Precision Drilling and Richelieu Hardware in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richelieu Hardware 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 Richelieu Hardware. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richelieu Hardware has no effect on the direction of Precision Drilling i.e., Precision Drilling and Richelieu Hardware go up and down completely randomly.

Pair Corralation between Precision Drilling and Richelieu Hardware

Assuming the 90 days horizon Precision Drilling is expected to under-perform the Richelieu Hardware. In addition to that, Precision Drilling is 1.28 times more volatile than Richelieu Hardware. It trades about -0.17 of its total potential returns per unit of risk. Richelieu Hardware is currently generating about -0.12 per unit of volatility. If you would invest  3,888  in Richelieu Hardware on December 24, 2024 and sell it today you would lose (490.00) from holding Richelieu Hardware or give up 12.6% of portfolio value over 90 days.

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

Precision Drilling  vs.  Richelieu Hardware

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.

Richelieu Hardware

Risk-Adjusted Performance

Very Weak

Over the last 90 days Richelieu Hardware 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 technical 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.

Pair Trading with Precision Drilling and Richelieu Hardware

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

The idea behind Precision Drilling and Richelieu Hardware 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.