Correlation Between Geodrill and Major Drilling

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

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

Diversification Opportunities for Geodrill and Major Drilling

-0.05

Correlation Coefficient

Geodrill  Major Drilling

Good diversification

The 3 months correlation between Geodrill and Major is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Geodrill Limited 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 Geodrill 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 Geodrill Limited 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 Geodrill i.e., Geodrill and Major Drilling go up and down completely randomly.

Pair Corralation between Geodrill and Major Drilling

Assuming the 90 days horizon Geodrill Limited is expected to generate 1.51 times more return on investment than Major Drilling. However, Geodrill is 1.51 times more volatile than Major Drilling Group. It trades about -0.03 of its potential returns per unit of risk. Major Drilling Group is currently generating about -0.35 per unit of risk. If you would invest  218.00  in Geodrill Limited on October 8, 2024 and sell it today you would lose (3.00) from holding Geodrill Limited or give up 1.38% of portfolio value over 90 days.

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

Geodrill Limited  vs.  Major Drilling Group

Geodrill Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Geodrill Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Geodrill reported solid returns over the last few months and may actually be approaching a breakup point.

Major Drilling Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Geodrill and Major Drilling

The main advantage of trading using opposite Geodrill and Major Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Geodrill 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 Geodrill Limited 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.