Correlation Between Acadian Timber and AKITA Drilling

Can any of the company-specific risk be diversified away by investing in both Acadian Timber and AKITA Drilling 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 Acadian Timber and AKITA Drilling into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Acadian Timber Corp and AKITA Drilling, you can compare the effects of market volatilities on Acadian Timber and AKITA Drilling 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 Acadian Timber with a short position of AKITA Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Acadian Timber and AKITA Drilling.

Diversification Opportunities for Acadian Timber and AKITA Drilling

-0.29

Correlation Coefficient

Acadian Timber  AKITA Drilling

Very good diversification

The 3 months correlation between Acadian and AKITA is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Acadian Timber Corp and AKITA Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AKITA Drilling and Acadian Timber 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 Acadian Timber Corp are associated (or correlated) with AKITA Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AKITA Drilling has no effect on the direction of Acadian Timber i.e., Acadian Timber and AKITA Drilling go up and down completely randomly.

Pair Corralation between Acadian Timber and AKITA Drilling

Assuming the 90 days trading horizon Acadian Timber Corp is expected to under-perform the AKITA Drilling. But the stock apears to be less risky and, when comparing its historical volatility, Acadian Timber Corp is 1.8 times less risky than AKITA Drilling. The stock trades about -0.07 of its potential returns per unit of risk. The AKITA Drilling is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  159.00  in AKITA Drilling on October 26, 2024 and sell it today you would earn a total of  9.00  from holding AKITA Drilling or generate 5.66% return on investment over 90 days.

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

Acadian Timber Corp  vs.  AKITA Drilling

Acadian Timber Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Acadian Timber Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Acadian Timber is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

AKITA Drilling

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AKITA Drilling are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, AKITA Drilling may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Acadian Timber and AKITA Drilling

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

The idea behind Acadian Timber Corp and AKITA Drilling 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.