Correlation Between PRECISION DRILLING and SHELF DRILLING

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

By analyzing existing cross correlation between PRECISION DRILLING P and SHELF DRILLING LTD, you can compare the effects of market volatilities on PRECISION DRILLING and SHELF DRILLING 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 SHELF DRILLING. Check out your portfolio center. Please also check ongoing floating volatility patterns of PRECISION DRILLING and SHELF DRILLING.

Diversification Opportunities for PRECISION DRILLING and SHELF DRILLING

0.42

Correlation Coefficient

PRECISION DRILLING  SHELF DRILLING

Very weak diversification

The 3 months correlation between PRECISION and SHELF is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding PRECISION DRILLING P and SHELF DRILLING LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SHELF DRILLING LTD 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 P are associated (or correlated) with SHELF DRILLING. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SHELF DRILLING LTD has no effect on the direction of PRECISION DRILLING i.e., PRECISION DRILLING and SHELF DRILLING go up and down completely randomly.

Pair Corralation between PRECISION DRILLING and SHELF DRILLING

Assuming the 90 days trading horizon PRECISION DRILLING P is expected to generate 0.59 times more return on investment than SHELF DRILLING. However, PRECISION DRILLING P is 1.7 times less risky than SHELF DRILLING. It trades about -0.15 of its potential returns per unit of risk. SHELF DRILLING LTD is currently generating about -0.09 per unit of risk. If you would invest  5,900  in PRECISION DRILLING P on November 29, 2024 and sell it today you would lose (1,000.00) from holding PRECISION DRILLING P or give up 16.95% of portfolio value over 90 days.

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

PRECISION DRILLING P  vs.  SHELF DRILLING LTD

PRECISION DRILLING

Risk-Adjusted Performance

Very Weak

Over the last 90 days PRECISION DRILLING P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

SHELF DRILLING LTD

Risk-Adjusted Performance

Very Weak

Over the last 90 days SHELF DRILLING LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with PRECISION DRILLING and SHELF DRILLING

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

The idea behind PRECISION DRILLING P and SHELF DRILLING LTD 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.