Correlation Between Master Drilling and ABSA Bank

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

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

Diversification Opportunities for Master Drilling and ABSA Bank

-0.3

Correlation Coefficient

Master Drilling  ABSA Bank

Very good diversification

The 3 months correlation between Master and ABSA is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Master Drilling Group and ABSA Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABSA Bank Limited and Master 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 Master Drilling Group are associated (or correlated) with ABSA Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABSA Bank Limited has no effect on the direction of Master Drilling i.e., Master Drilling and ABSA Bank go up and down completely randomly.

Pair Corralation between Master Drilling and ABSA Bank

Assuming the 90 days trading horizon Master Drilling Group is expected to generate 3.24 times more return on investment than ABSA Bank. However, Master Drilling is 3.24 times more volatile than ABSA Bank Limited. It trades about 0.04 of its potential returns per unit of risk. ABSA Bank Limited is currently generating about -0.08 per unit of risk. If you would invest  136,000  in Master Drilling Group on December 30, 2024 and sell it today you would earn a total of  5,500  from holding Master Drilling Group or generate 4.04% return on investment over 90 days.

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

Master Drilling Group  vs.  ABSA Bank Limited

Master Drilling Group

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Master Drilling Group are ranked lower than 2 (%) 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 April 2025.

ABSA Bank Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days ABSA Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ABSA Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Master Drilling and ABSA Bank

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

The idea behind Master Drilling Group and ABSA Bank 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 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.