Correlation Between Precision Drilling and Baytex Energy

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

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

Diversification Opportunities for Precision Drilling and Baytex Energy

0.94

Correlation Coefficient

Precision Drilling  Baytex Energy

Almost no diversification

The 3 months correlation between Precision and Baytex is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Precision Drilling and Baytex Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baytex Energy Corp 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 Baytex Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baytex Energy Corp has no effect on the direction of Precision Drilling i.e., Precision Drilling and Baytex Energy go up and down completely randomly.

Pair Corralation between Precision Drilling and Baytex Energy

Considering the 90-day investment horizon Precision Drilling is expected to generate 1.26 times less return on investment than Baytex Energy. But when comparing it to its historical volatility, Precision Drilling is 1.51 times less risky than Baytex Energy. It trades about 0.19 of its potential returns per unit of risk. Baytex Energy Corp is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  152.00  in Baytex Energy Corp on May 5, 2025 and sell it today you would earn a total of  58.00  from holding Baytex Energy Corp or generate 38.16% return on investment over 90 days.

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

Precision Drilling  vs.  Baytex Energy Corp

Precision Drilling

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Precision Drilling are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating fundamental indicators, Precision Drilling unveiled solid returns over the last few months and may actually be approaching a breakup point.

Baytex Energy Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Baytex Energy Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Baytex Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Precision Drilling and Baytex Energy

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

The idea behind Precision Drilling and Baytex Energy Corp 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.