Correlation Between Precision Drilling and Chesapeake Energy

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

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

Diversification Opportunities for Precision Drilling and Chesapeake Energy

0.55

Correlation Coefficient

Precision Drilling  Chesapeake Energy

Very weak diversification

The 3 months correlation between Precision and Chesapeake is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Precision Drilling and Chesapeake Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Energy 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 Chesapeake Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chesapeake Energy has no effect on the direction of Precision Drilling i.e., Precision Drilling and Chesapeake Energy go up and down completely randomly.

Pair Corralation between Precision Drilling and Chesapeake Energy

Considering the 90-day investment horizon Precision Drilling is expected to under-perform the Chesapeake Energy. In addition to that, Precision Drilling is 1.07 times more volatile than Chesapeake Energy. It trades about -0.03 of its total potential returns per unit of risk. Chesapeake Energy is currently generating about 0.24 per unit of volatility. If you would invest  5,770  in Chesapeake Energy on September 4, 2024 and sell it today you would earn a total of  634.00  from holding Chesapeake Energy or generate 10.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	32.81%
Values	Daily Returns

Precision Drilling  vs.  Chesapeake Energy

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 comparatively stable fundamental indicators, Precision Drilling is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Chesapeake Energy

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Chesapeake Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly fragile technical and fundamental indicators, Chesapeake Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Precision Drilling and Chesapeake Energy

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

The idea behind Precision Drilling and Chesapeake Energy 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.