Correlation Between Major Drilling and Public Storage

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

Diversification Opportunities for Major Drilling and Public Storage

0.1

Correlation Coefficient

Major Drilling  Public Storage

Average diversification

The 3 months correlation between Major and Public is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Public Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Public Storage 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 Public Storage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Public Storage has no effect on the direction of Major Drilling i.e., Major Drilling and Public Storage go up and down completely randomly.

Pair Corralation between Major Drilling and Public Storage

Assuming the 90 days horizon Major Drilling is expected to generate 3.52 times less return on investment than Public Storage. In addition to that, Major Drilling is 1.62 times more volatile than Public Storage. It trades about 0.01 of its total potential returns per unit of risk. Public Storage is currently generating about 0.04 per unit of volatility. If you would invest  24,340  in Public Storage on September 30, 2024 and sell it today you would earn a total of  4,280  from holding Public Storage or generate 17.58% 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.  Public Storage

Major Drilling Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Major Drilling Group are ranked lower than 1 (%) 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.

Public Storage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Public Storage 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.

Pair Trading with Major Drilling and Public Storage

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

The idea behind Major Drilling Group and Public Storage 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.