Correlation Between Precision Drilling and Constellation Software

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

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

Diversification Opportunities for Precision Drilling and Constellation Software

-0.58

Correlation Coefficient

Precision Drilling  Constellation Software

Excellent diversification

The 3 months correlation between Precision and Constellation is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Precision Drilling and Constellation Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Software 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 Constellation Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Software has no effect on the direction of Precision Drilling i.e., Precision Drilling and Constellation Software go up and down completely randomly.

Pair Corralation between Precision Drilling and Constellation Software

Assuming the 90 days horizon Precision Drilling is expected to generate 1.96 times more return on investment than Constellation Software. However, Precision Drilling is 1.96 times more volatile than Constellation Software. It trades about 0.17 of its potential returns per unit of risk. Constellation Software is currently generating about -0.1 per unit of risk. If you would invest  6,109  in Precision Drilling on May 15, 2025 and sell it today you would earn a total of  1,575  from holding Precision Drilling or generate 25.78% return on investment over 90 days.

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

Precision Drilling  vs.  Constellation Software

Precision Drilling

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Precision Drilling are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Precision Drilling displayed solid returns over the last few months and may actually be approaching a breakup point.

Constellation Software

Risk-Adjusted Performance

Weakest

Over the last 90 days Constellation Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Precision Drilling and Constellation Software

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

The idea behind Precision Drilling and Constellation Software 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.