Correlation Between PRECISION DRILLING and Chongqing Machinery

Can any of the company-specific risk be diversified away by investing in both PRECISION DRILLING and Chongqing Machinery 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 Chongqing Machinery 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 Chongqing Machinery Electric, you can compare the effects of market volatilities on PRECISION DRILLING and Chongqing Machinery 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 Chongqing Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of PRECISION DRILLING and Chongqing Machinery.

Diversification Opportunities for PRECISION DRILLING and Chongqing Machinery

0.24

Correlation Coefficient

PRECISION DRILLING  Chongqing Machinery

Modest diversification

The 3 months correlation between PRECISION and Chongqing is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding PRECISION DRILLING P and Chongqing Machinery Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Machinery 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 Chongqing Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Machinery has no effect on the direction of PRECISION DRILLING i.e., PRECISION DRILLING and Chongqing Machinery go up and down completely randomly.

Pair Corralation between PRECISION DRILLING and Chongqing Machinery

Assuming the 90 days trading horizon PRECISION DRILLING P is expected to generate 0.79 times more return on investment than Chongqing Machinery. However, PRECISION DRILLING P is 1.27 times less risky than Chongqing Machinery. It trades about 0.2 of its potential returns per unit of risk. Chongqing Machinery Electric is currently generating about -0.02 per unit of risk. If you would invest  5,650  in PRECISION DRILLING P on October 11, 2024 and sell it today you would earn a total of  500.00  from holding PRECISION DRILLING P or generate 8.85% return on investment over 90 days.

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

PRECISION DRILLING P  vs.  Chongqing Machinery Electric

PRECISION DRILLING

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PRECISION DRILLING P are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, PRECISION DRILLING may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Chongqing Machinery

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Machinery Electric are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Chongqing Machinery may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with PRECISION DRILLING and Chongqing Machinery

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

The idea behind PRECISION DRILLING P and Chongqing Machinery Electric 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.