Correlation Between SM Investments and Precision Drilling

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

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

Diversification Opportunities for SM Investments and Precision Drilling

0.22

Correlation Coefficient

SM Investments  Precision Drilling

Modest diversification

The 3 months correlation between SVTMF and Precision is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding SM Investments and Precision Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precision Drilling and SM Investments 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 SM Investments 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 SM Investments i.e., SM Investments and Precision Drilling go up and down completely randomly.

Pair Corralation between SM Investments and Precision Drilling

Assuming the 90 days horizon SM Investments is expected to generate 23.73 times less return on investment than Precision Drilling. But when comparing it to its historical volatility, SM Investments is 1.23 times less risky than Precision Drilling. It trades about 0.01 of its potential returns per unit of risk. Precision Drilling is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,241  in Precision Drilling on May 18, 2025 and sell it today you would earn a total of  1,162  from holding Precision Drilling or generate 27.4% return on investment over 90 days.

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

SM Investments  vs.  Precision Drilling

SM Investments

Risk-Adjusted Performance

Weakest

Over the last 90 days SM Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, SM Investments is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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.

Pair Trading with SM Investments and Precision Drilling

The main advantage of trading using opposite SM Investments and Precision Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SM Investments 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 SM Investments 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 CEOs Directory module to screen CEOs from public companies around the world.