Correlation Between Financial and Major Drilling

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

By analyzing existing cross correlation between Financial 15 Split and Major Drilling Group, you can compare the effects of market volatilities on Financial and Major 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 Financial with a short position of Major Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial and Major Drilling.

Diversification Opportunities for Financial and Major Drilling

0.05

Correlation Coefficient

Financial  Major Drilling

Significant diversification

The 3 months correlation between Financial and Major is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Financial 15 Split and Major Drilling Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Major Drilling Group and Financial 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 Financial 15 Split are associated (or correlated) with Major Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Major Drilling Group has no effect on the direction of Financial i.e., Financial and Major Drilling go up and down completely randomly.

Pair Corralation between Financial and Major Drilling

Assuming the 90 days trading horizon Financial 15 Split is expected to generate 0.14 times more return on investment than Major Drilling. However, Financial 15 Split is 7.14 times less risky than Major Drilling. It trades about 0.18 of its potential returns per unit of risk. Major Drilling Group is currently generating about -0.02 per unit of risk. If you would invest  824.00  in Financial 15 Split on October 5, 2024 and sell it today you would earn a total of  245.00  from holding Financial 15 Split or generate 29.73% return on investment over 90 days.

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

Financial 15 Split  vs.  Major Drilling Group

Financial 15 Split

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Financial 15 Split are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Major Drilling Group

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Financial and Major Drilling

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

The idea behind Financial 15 Split and Major 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.