Correlation Between Allied Electronics and Master Drilling

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

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

Diversification Opportunities for Allied Electronics and Master Drilling

-0.02

Correlation Coefficient

Allied Electronics  Master Drilling

Good diversification

The 3 months correlation between Allied and Master is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Allied Electronics and Master Drilling Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Master Drilling Group and Allied Electronics 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 Allied Electronics are associated (or correlated) with Master Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Master Drilling Group has no effect on the direction of Allied Electronics i.e., Allied Electronics and Master Drilling go up and down completely randomly.

Pair Corralation between Allied Electronics and Master Drilling

Assuming the 90 days trading horizon Allied Electronics is expected to generate 1.06 times more return on investment than Master Drilling. However, Allied Electronics is 1.06 times more volatile than Master Drilling Group. It trades about 0.15 of its potential returns per unit of risk. Master Drilling Group is currently generating about 0.01 per unit of risk. If you would invest  78,900  in Allied Electronics on October 6, 2024 and sell it today you would earn a total of  148,100  from holding Allied Electronics or generate 187.71% return on investment over 90 days.

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

Allied Electronics  vs.  Master Drilling Group

Allied Electronics

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Electronics are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Allied Electronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Master Drilling Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Master Drilling Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Master Drilling may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Allied Electronics and Master Drilling

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

The idea behind Allied Electronics and Master Drilling Group 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.