Correlation Between Major Drilling and INSURANCE AUST

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

Diversification Opportunities for Major Drilling and INSURANCE AUST

0.5

Correlation Coefficient

Major Drilling  INSURANCE AUST

Very weak diversification

The 3 months correlation between Major and INSURANCE is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and INSURANCE AUST GRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INSURANCE AUST GRP 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 INSURANCE AUST. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INSURANCE AUST GRP has no effect on the direction of Major Drilling i.e., Major Drilling and INSURANCE AUST go up and down completely randomly.

Pair Corralation between Major Drilling and INSURANCE AUST

Assuming the 90 days horizon Major Drilling Group is expected to generate 1.11 times more return on investment than INSURANCE AUST. However, Major Drilling is 1.11 times more volatile than INSURANCE AUST GRP. It trades about -0.06 of its potential returns per unit of risk. INSURANCE AUST GRP is currently generating about -0.07 per unit of risk. If you would invest  540.00  in Major Drilling Group on December 21, 2024 and sell it today you would lose (54.00) from holding Major Drilling Group or give up 10.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Major Drilling Group  vs.  INSURANCE AUST GRP

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.

INSURANCE AUST GRP

Risk-Adjusted Performance

Very Weak

Over the last 90 days INSURANCE AUST GRP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Major Drilling and INSURANCE AUST

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

The idea behind Major Drilling Group and INSURANCE AUST GRP 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.