Correlation Between Major Drilling and Nippon Light

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

Diversification Opportunities for Major Drilling and Nippon Light

0.01

Correlation Coefficient

Major Drilling  Nippon Light

Significant diversification

The 3 months correlation between Major and Nippon is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Nippon Light Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Light Metal 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 Nippon Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Light Metal has no effect on the direction of Major Drilling i.e., Major Drilling and Nippon Light go up and down completely randomly.

Pair Corralation between Major Drilling and Nippon Light

Assuming the 90 days horizon Major Drilling Group is expected to under-perform the Nippon Light. In addition to that, Major Drilling is 1.61 times more volatile than Nippon Light Metal. It trades about -0.07 of its total potential returns per unit of risk. Nippon Light Metal is currently generating about 0.1 per unit of volatility. If you would invest  900.00  in Nippon Light Metal on December 20, 2024 and sell it today you would earn a total of  75.00  from holding Nippon Light Metal or generate 8.33% return on investment over 90 days.

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

Major Drilling Group  vs.  Nippon Light Metal

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.

Nippon Light Metal

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Light Metal are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nippon Light may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Major Drilling and Nippon Light

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

The idea behind Major Drilling Group and Nippon Light Metal 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.