Correlation Between Major Drilling and Amazon

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

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

Diversification Opportunities for Major Drilling and Amazon

0.4

Correlation Coefficient

Major Drilling  Amazon

Very weak diversification

The 3 months correlation between Major and Amazon is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Major 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 Major Drilling Group are associated (or correlated) with Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Major Drilling i.e., Major Drilling and Amazon go up and down completely randomly.

Pair Corralation between Major Drilling and Amazon

Assuming the 90 days horizon Major Drilling Group is expected to generate 1.73 times more return on investment than Amazon. However, Major Drilling is 1.73 times more volatile than Amazon Inc. It trades about 0.16 of its potential returns per unit of risk. Amazon Inc is currently generating about -0.23 per unit of risk. If you would invest  565.00  in Major Drilling Group on October 15, 2024 and sell it today you would earn a total of  25.00  from holding Major Drilling Group or generate 4.42% return on investment over 90 days.

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

Major Drilling Group  vs.  Amazon Inc

Major Drilling Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Major Drilling Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Major Drilling may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Amazon Inc

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Amazon unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Major Drilling and Amazon

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

The idea behind Major Drilling Group and Amazon Inc 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.

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.