Correlation Between Patterson UTI and Precision Drilling

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

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

Diversification Opportunities for Patterson UTI and Precision Drilling

0.64

Correlation Coefficient

Patterson UTI  Precision Drilling

Poor diversification

The 3 months correlation between Patterson and Precision is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Patterson UTI Energy and Precision Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precision Drilling and Patterson UTI 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 Patterson UTI Energy 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 Patterson UTI i.e., Patterson UTI and Precision Drilling go up and down completely randomly.

Pair Corralation between Patterson UTI and Precision Drilling

Given the investment horizon of 90 days Patterson UTI is expected to generate 2.75 times less return on investment than Precision Drilling. In addition to that, Patterson UTI is 1.11 times more volatile than Precision Drilling. It trades about 0.02 of its total potential returns per unit of risk. Precision Drilling is currently generating about 0.07 per unit of volatility. If you would invest  4,849  in Precision Drilling on January 25, 2024 and sell it today you would earn a total of  1,995  from holding Precision Drilling or generate 41.14% return on investment over 90 days.

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

Patterson UTI Energy  vs.  Precision Drilling

Patterson UTI Energy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Patterson UTI Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, Patterson UTI may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Precision Drilling

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Precision Drilling are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Precision Drilling unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Patterson UTI and Precision Drilling

The main advantage of trading using opposite Patterson UTI and Precision Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Patterson UTI 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 Patterson UTI Energy 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.