Correlation Between Precision Drilling and STEP Energy

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

Diversification Opportunities for Precision Drilling and STEP Energy

0.6

Correlation Coefficient

Precision Drilling  STEP Energy

Poor diversification

The 3 months correlation between Precision and STEP is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Precision Drilling and STEP Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STEP Energy Services 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 STEP Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STEP Energy Services has no effect on the direction of Precision Drilling i.e., Precision Drilling and STEP Energy go up and down completely randomly.

Pair Corralation between Precision Drilling and STEP Energy

Assuming the 90 days horizon Precision Drilling is expected to generate 1.31 times more return on investment than STEP Energy. However, Precision Drilling is 1.31 times more volatile than STEP Energy Services. It trades about 0.12 of its potential returns per unit of risk. STEP Energy Services is currently generating about 0.16 per unit of risk. If you would invest  5,956  in Precision Drilling on April 22, 2025 and sell it today you would earn a total of  1,064  from holding Precision Drilling or generate 17.86% return on investment over 90 days.

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

Precision Drilling  vs.  STEP Energy Services

Precision Drilling

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Precision Drilling are ranked lower than 9 (%) 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.

STEP Energy Services

Risk-Adjusted Performance

Good

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

Pair Trading with Precision Drilling and STEP Energy

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

The idea behind Precision Drilling and STEP Energy Services 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.