Correlation Between Master Drilling and Brimstone Investment

Can any of the company-specific risk be diversified away by investing in both Master Drilling and Brimstone Investment 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 Brimstone Investment 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 Brimstone Investment, you can compare the effects of market volatilities on Master Drilling and Brimstone Investment 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 Brimstone Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Master Drilling and Brimstone Investment.

Diversification Opportunities for Master Drilling and Brimstone Investment

-0.43

Correlation Coefficient

Master Drilling  Brimstone Investment

Very good diversification

The 3 months correlation between Master and Brimstone is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Master Drilling Group and Brimstone Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brimstone Investment 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 Brimstone Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brimstone Investment has no effect on the direction of Master Drilling i.e., Master Drilling and Brimstone Investment go up and down completely randomly.

Pair Corralation between Master Drilling and Brimstone Investment

Assuming the 90 days trading horizon Master Drilling is expected to generate 4.25 times less return on investment than Brimstone Investment. But when comparing it to its historical volatility, Master Drilling Group is 1.25 times less risky than Brimstone Investment. It trades about 0.01 of its potential returns per unit of risk. Brimstone Investment is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  46,500  in Brimstone Investment on September 24, 2024 and sell it today you would earn a total of  5,000  from holding Brimstone Investment or generate 10.75% return on investment over 90 days.

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

Master Drilling Group  vs.  Brimstone Investment

Master Drilling Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Master Drilling Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Master Drilling is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Brimstone Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brimstone Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Brimstone Investment is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Master Drilling and Brimstone Investment

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

The idea behind Master Drilling Group and Brimstone Investment 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.