Correlation Between Precision Drilling and Lake Resources

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

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

Diversification Opportunities for Precision Drilling and Lake Resources

-0.27

Correlation Coefficient

Precision Drilling  Lake Resources

Very good diversification

The 3 months correlation between Precision and Lake is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Precision Drilling and Lake Resources NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lake Resources NL 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 Lake Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lake Resources NL has no effect on the direction of Precision Drilling i.e., Precision Drilling and Lake Resources go up and down completely randomly.

Pair Corralation between Precision Drilling and Lake Resources

Considering the 90-day investment horizon Precision Drilling is expected to under-perform the Lake Resources. But the stock apears to be less risky and, when comparing its historical volatility, Precision Drilling is 5.24 times less risky than Lake Resources. The stock trades about -0.09 of its potential returns per unit of risk. The Lake Resources NL is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2.45  in Lake Resources NL on September 23, 2024 and sell it today you would earn a total of  0.27  from holding Lake Resources NL or generate 11.02% return on investment over 90 days.

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

Precision Drilling  vs.  Lake Resources NL

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 latest unsteady performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Lake Resources NL

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lake Resources NL are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting forward-looking signals, Lake Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Precision Drilling and Lake Resources

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

The idea behind Precision Drilling and Lake Resources NL 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.