Correlation Between Precision Drilling and Eni SPA

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

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

Diversification Opportunities for Precision Drilling and Eni SPA

0.45

Correlation Coefficient

Precision Drilling  Eni SPA

Very weak diversification

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

Pair Corralation between Precision Drilling and Eni SPA

Considering the 90-day investment horizon Precision Drilling is expected to generate 2.02 times more return on investment than Eni SPA. However, Precision Drilling is 2.02 times more volatile than Eni SpA ADR. It trades about 0.01 of its potential returns per unit of risk. Eni SpA ADR is currently generating about -0.03 per unit of risk. If you would invest  5,781  in Precision Drilling on September 21, 2024 and sell it today you would lose (123.00) from holding Precision Drilling or give up 2.13% of portfolio value over 90 days.

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

Precision Drilling  vs.  Eni SpA ADR

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 latest weak performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Eni SpA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eni SpA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Precision Drilling and Eni SPA

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

The idea behind Precision Drilling and Eni SpA ADR 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.

Check out your portfolio center.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.