Correlation Between PRECISION DRILLING and Canadian National

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

Diversification Opportunities for PRECISION DRILLING and Canadian National

0.03

Correlation Coefficient

PRECISION DRILLING  Canadian National

Significant diversification

The 3 months correlation between PRECISION and Canadian is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding PRECISION DRILLING P and Canadian National Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian National Railway 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 Canadian National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian National Railway has no effect on the direction of PRECISION DRILLING i.e., PRECISION DRILLING and Canadian National go up and down completely randomly.

Pair Corralation between PRECISION DRILLING and Canadian National

Assuming the 90 days trading horizon PRECISION DRILLING P is expected to generate 2.08 times more return on investment than Canadian National. However, PRECISION DRILLING is 2.08 times more volatile than Canadian National Railway. It trades about 0.03 of its potential returns per unit of risk. Canadian National Railway is currently generating about -0.03 per unit of risk. If you would invest  5,600  in PRECISION DRILLING P on October 24, 2024 and sell it today you would earn a total of  700.00  from holding PRECISION DRILLING P or generate 12.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

PRECISION DRILLING P  vs.  Canadian National Railway

PRECISION DRILLING

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PRECISION DRILLING P are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, PRECISION DRILLING reported solid returns over the last few months and may actually be approaching a breakup point.

Canadian National Railway

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with PRECISION DRILLING and Canadian National

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

The idea behind PRECISION DRILLING P and Canadian National Railway 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.