Correlation Between Precision Drilling and Cincinnati Financial

Can any of the company-specific risk be diversified away by investing in both Precision Drilling and Cincinnati 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 Cincinnati 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 Cincinnati Financial, you can compare the effects of market volatilities on Precision Drilling and Cincinnati 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 Cincinnati Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Precision Drilling and Cincinnati Financial.

Diversification Opportunities for Precision Drilling and Cincinnati Financial

0.14

Correlation Coefficient

Precision Drilling  Cincinnati Financial

Average diversification

The 3 months correlation between Precision and Cincinnati is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Precision Drilling and Cincinnati Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cincinnati Financial 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 Cincinnati Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cincinnati Financial has no effect on the direction of Precision Drilling i.e., Precision Drilling and Cincinnati Financial go up and down completely randomly.

Pair Corralation between Precision Drilling and Cincinnati Financial

Considering the 90-day investment horizon Precision Drilling is expected to generate 2.16 times less return on investment than Cincinnati Financial. In addition to that, Precision Drilling is 1.77 times more volatile than Cincinnati Financial. It trades about 0.01 of its total potential returns per unit of risk. Cincinnati Financial is currently generating about 0.05 per unit of volatility. If you would invest  10,531  in Cincinnati Financial on December 7, 2024 and sell it today you would earn a total of  3,546  from holding Cincinnati Financial or generate 33.67% return on investment over 90 days.

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

Precision Drilling  vs.  Cincinnati Financial

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 weak performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Cincinnati Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cincinnati Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Precision Drilling and Cincinnati Financial

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

The idea behind Precision Drilling and Cincinnati Financial 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.