Correlation Between Major Drilling and Goodyear Tire

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

Diversification Opportunities for Major Drilling and Goodyear Tire

0.65

Correlation Coefficient

Major Drilling  Goodyear Tire

Poor diversification

The 3 months correlation between Major and Goodyear is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and The Goodyear Tire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goodyear Tire 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 Goodyear Tire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goodyear Tire has no effect on the direction of Major Drilling i.e., Major Drilling and Goodyear Tire go up and down completely randomly.

Pair Corralation between Major Drilling and Goodyear Tire

Assuming the 90 days horizon Major Drilling Group is expected to generate 1.0 times more return on investment than Goodyear Tire. However, Major Drilling is 1.0 times more volatile than The Goodyear Tire. It trades about -0.11 of its potential returns per unit of risk. The Goodyear Tire is currently generating about -0.33 per unit of risk. If you would invest  580.00  in Major Drilling Group on October 9, 2024 and sell it today you would lose (25.00) from holding Major Drilling Group or give up 4.31% of portfolio value over 90 days.

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

Major Drilling Group  vs.  The Goodyear Tire

Major Drilling Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Major Drilling Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Major Drilling is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Goodyear Tire

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Goodyear Tire are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Goodyear Tire reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Major Drilling and Goodyear Tire

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

The idea behind Major Drilling Group and The Goodyear Tire 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.