Correlation Between Precision Drilling and Maanshan Iron

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

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

Diversification Opportunities for Precision Drilling and Maanshan Iron

-0.36

Correlation Coefficient

Precision Drilling  Maanshan Iron

Very good diversification

The 3 months correlation between Precision and Maanshan is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Precision Drilling and Maanshan Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maanshan Iron Steel 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 Maanshan Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maanshan Iron Steel has no effect on the direction of Precision Drilling i.e., Precision Drilling and Maanshan Iron go up and down completely randomly.

Pair Corralation between Precision Drilling and Maanshan Iron

Considering the 90-day investment horizon Precision Drilling is expected to under-perform the Maanshan Iron. But the stock apears to be less risky and, when comparing its historical volatility, Precision Drilling is 1.82 times less risky than Maanshan Iron. The stock trades about -0.04 of its potential returns per unit of risk. The Maanshan Iron Steel is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  13.00  in Maanshan Iron Steel on September 3, 2024 and sell it today you would lose (1.00) from holding Maanshan Iron Steel or give up 7.69% of portfolio value over 90 days.

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

Precision Drilling  vs.  Maanshan Iron Steel

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.

Maanshan Iron Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Maanshan Iron Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Maanshan Iron is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Precision Drilling and Maanshan Iron

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

The idea behind Precision Drilling and Maanshan Iron Steel 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.