Correlation Between STEP Energy and Precision Drilling

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

By analyzing existing cross correlation between STEP Energy Services and Precision Drilling, you can compare the effects of market volatilities on STEP Energy and Precision 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 STEP Energy with a short position of Precision Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of STEP Energy and Precision Drilling.

Diversification Opportunities for STEP Energy and Precision Drilling

0.63

Correlation Coefficient

STEP Energy  Precision Drilling

Poor diversification

The 3 months correlation between STEP and Precision is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding STEP Energy Services and Precision Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precision Drilling and STEP Energy 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 STEP Energy Services are associated (or correlated) with Precision Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precision Drilling has no effect on the direction of STEP Energy i.e., STEP Energy and Precision Drilling go up and down completely randomly.

Pair Corralation between STEP Energy and Precision Drilling

Assuming the 90 days trading horizon STEP Energy Services is expected to generate 2.82 times more return on investment than Precision Drilling. However, STEP Energy is 2.82 times more volatile than Precision Drilling. It trades about 0.04 of its potential returns per unit of risk. Precision Drilling is currently generating about 0.01 per unit of risk. If you would invest  383.00  in STEP Energy Services on September 30, 2024 and sell it today you would earn a total of  29.00  from holding STEP Energy Services or generate 7.57% return on investment over 90 days.

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

STEP Energy Services  vs.  Precision Drilling

STEP Energy Services

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in STEP Energy Services are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, STEP Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

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 very healthy basic indicators, Precision Drilling is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with STEP Energy and Precision Drilling

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

The idea behind STEP Energy Services and Precision Drilling 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.