Correlation Between AKITA Drilling and Alumina

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

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

Diversification Opportunities for AKITA Drilling and Alumina

-0.02

Correlation Coefficient

AKITA Drilling  Alumina

Good diversification

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

Pair Corralation between AKITA Drilling and Alumina

Assuming the 90 days horizon AKITA Drilling is expected to generate 4.89 times less return on investment than Alumina. But when comparing it to its historical volatility, AKITA Drilling is 1.19 times less risky than Alumina. It trades about 0.02 of its potential returns per unit of risk. Alumina Limited is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  92.00  in Alumina Limited on October 9, 2024 and sell it today you would earn a total of  19.00  from holding Alumina Limited or generate 20.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	43.32%
Values	Daily Returns

AKITA Drilling  vs.  Alumina Limited

AKITA Drilling

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AKITA Drilling are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, AKITA Drilling is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Alumina Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alumina Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Alumina is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with AKITA Drilling and Alumina

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

The idea behind AKITA Drilling and Alumina Limited 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.