Correlation Between Precision Drilling and Bayer AG

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

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

Diversification Opportunities for Precision Drilling and Bayer AG

0.16

Correlation Coefficient

Precision Drilling  Bayer AG

Average diversification

The 3 months correlation between Precision and Bayer is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Precision Drilling and Bayer AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayer AG 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 Bayer AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayer AG has no effect on the direction of Precision Drilling i.e., Precision Drilling and Bayer AG go up and down completely randomly.

Pair Corralation between Precision Drilling and Bayer AG

Considering the 90-day investment horizon Precision Drilling is expected to generate 0.97 times more return on investment than Bayer AG. However, Precision Drilling is 1.03 times less risky than Bayer AG. It trades about -0.02 of its potential returns per unit of risk. Bayer AG is currently generating about -0.09 per unit of risk. If you would invest  7,207  in Precision Drilling on October 10, 2024 and sell it today you would lose (580.00) from holding Precision Drilling or give up 8.05% of portfolio value over 90 days.

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

Precision Drilling  vs.  Bayer AG

Precision Drilling

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Precision Drilling are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Precision Drilling may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Bayer AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayer AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Precision Drilling and Bayer AG

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

The idea behind Precision Drilling and Bayer AG 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.