Correlation Between Precision Drilling and Diamond Offshore

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

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

Diversification Opportunities for Precision Drilling and Diamond Offshore

-0.45

Correlation Coefficient

Precision Drilling  Diamond Offshore

Very good diversification

The 3 months correlation between Precision and Diamond is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Precision Drilling and Diamond Offshore Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Offshore Drilling 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 Diamond Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Offshore Drilling has no effect on the direction of Precision Drilling i.e., Precision Drilling and Diamond Offshore go up and down completely randomly.

Pair Corralation between Precision Drilling and Diamond Offshore

Considering the 90-day investment horizon Precision Drilling is expected to generate 0.05 times more return on investment than Diamond Offshore. However, Precision Drilling is 20.67 times less risky than Diamond Offshore. It trades about -0.09 of its potential returns per unit of risk. Diamond Offshore Drilling is currently generating about -0.52 per unit of risk. If you would invest  7,231  in Precision Drilling on August 30, 2024 and sell it today you would lose (987.00) from holding Precision Drilling or give up 13.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	6.35%
Values	Daily Returns

Precision Drilling  vs.  Diamond Offshore Drilling

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 weak performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Diamond Offshore Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Offshore Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Precision Drilling and Diamond Offshore

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

The idea behind Precision Drilling and Diamond Offshore Drilling 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.