Correlation Between Major Drilling and Mitie Group

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

Diversification Opportunities for Major Drilling and Mitie Group

0.61

Correlation Coefficient

Major Drilling  Mitie Group

Poor diversification

The 3 months correlation between Major and Mitie is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Mitie Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitie Group PLC 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 Mitie Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitie Group PLC has no effect on the direction of Major Drilling i.e., Major Drilling and Mitie Group go up and down completely randomly.

Pair Corralation between Major Drilling and Mitie Group

Assuming the 90 days horizon Major Drilling Group is expected to under-perform the Mitie Group. In addition to that, Major Drilling is 1.37 times more volatile than Mitie Group PLC. It trades about -0.07 of its total potential returns per unit of risk. Mitie Group PLC is currently generating about -0.02 per unit of volatility. If you would invest  116,050  in Mitie Group PLC on December 20, 2024 and sell it today you would lose (3,650) from holding Mitie Group PLC or give up 3.15% 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.  Mitie Group PLC

Major Drilling Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Major Drilling Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Mitie Group PLC

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Major Drilling and Mitie Group

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

The idea behind Major Drilling Group and Mitie Group PLC 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 Stocks Directory module to find actively traded stocks across global markets.