Correlation Between Total Energy and Precision Drilling

Can any of the company-specific risk be diversified away by investing in both Total 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 Total 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 Total Energy Services and Precision Drilling, you can compare the effects of market volatilities on Total 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 Total Energy with a short position of Precision Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Total Energy and Precision Drilling.

Diversification Opportunities for Total Energy and Precision Drilling

0.84

Correlation Coefficient

Total Energy  Precision Drilling

Very poor diversification

The 3 months correlation between Total and Precision is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Total 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 Total 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 Total 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 Total Energy i.e., Total Energy and Precision Drilling go up and down completely randomly.

Pair Corralation between Total Energy and Precision Drilling

Assuming the 90 days trading horizon Total Energy is expected to generate 1.26 times less return on investment than Precision Drilling. But when comparing it to its historical volatility, Total Energy Services is 1.47 times less risky than Precision Drilling. It trades about 0.2 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  5,966  in Precision Drilling on May 2, 2025 and sell it today you would earn a total of  1,779  from holding Precision Drilling or generate 29.82% return on investment over 90 days.

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

Total Energy Services  vs.  Precision Drilling

Total Energy Services

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Total Energy Services are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Total Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Total Energy and Precision Drilling

The main advantage of trading using opposite Total Energy and Precision Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Total 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 Total 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.