Correlation Between RETAIL FOOD and Major Drilling

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

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

Diversification Opportunities for RETAIL FOOD and Major Drilling

0.27

Correlation Coefficient

RETAIL FOOD  Major Drilling

Modest diversification

The 3 months correlation between RETAIL and Major is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding RETAIL FOOD GROUP 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 RETAIL FOOD 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 RETAIL FOOD GROUP 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 RETAIL FOOD i.e., RETAIL FOOD and Major Drilling go up and down completely randomly.

Pair Corralation between RETAIL FOOD and Major Drilling

Assuming the 90 days trading horizon RETAIL FOOD GROUP is expected to under-perform the Major Drilling. In addition to that, RETAIL FOOD is 1.47 times more volatile than Major Drilling Group. It trades about -0.18 of its total potential returns per unit of risk. Major Drilling Group is currently generating about -0.07 per unit of volatility. If you would invest  545.00  in Major Drilling Group on December 20, 2024 and sell it today you would lose (61.00) from holding Major Drilling Group or give up 11.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

RETAIL FOOD GROUP  vs.  Major Drilling Group

RETAIL FOOD GROUP

Risk-Adjusted Performance

Very Weak

Over the last 90 days RETAIL FOOD GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Major Drilling Group

Risk-Adjusted Performance

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with RETAIL FOOD and Major Drilling

The main advantage of trading using opposite RETAIL FOOD and Major Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RETAIL FOOD 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 RETAIL FOOD GROUP 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.