Correlation Between Precision Drilling and Employers Holdings

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

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

Diversification Opportunities for Precision Drilling and Employers Holdings

0.02

Correlation Coefficient

Precision Drilling  Employers Holdings

Significant diversification

The 3 months correlation between Precision and Employers is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Precision Drilling and Employers Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Employers Holdings 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 Employers Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Employers Holdings has no effect on the direction of Precision Drilling i.e., Precision Drilling and Employers Holdings go up and down completely randomly.

Pair Corralation between Precision Drilling and Employers Holdings

Considering the 90-day investment horizon Precision Drilling is expected to under-perform the Employers Holdings. In addition to that, Precision Drilling is 2.7 times more volatile than Employers Holdings. It trades about -0.21 of its total potential returns per unit of risk. Employers Holdings is currently generating about -0.11 per unit of volatility. If you would invest  5,249  in Employers Holdings on September 20, 2024 and sell it today you would lose (101.00) from holding Employers Holdings or give up 1.92% 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.  Employers Holdings

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 January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Employers Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Employers Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Employers Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Precision Drilling and Employers Holdings

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

The idea behind Precision Drilling and Employers Holdings 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.