Correlation Between Master Drilling and Lewis Group

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

Diversification Opportunities for Master Drilling and Lewis Group

-0.03

Correlation Coefficient

Master Drilling  Lewis Group

Good diversification

The 3 months correlation between Master and Lewis is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Master Drilling Group and Lewis Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lewis Group 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 Lewis Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lewis Group Limited has no effect on the direction of Master Drilling i.e., Master Drilling and Lewis Group go up and down completely randomly.

Pair Corralation between Master Drilling and Lewis Group

Assuming the 90 days trading horizon Master Drilling Group is expected to under-perform the Lewis Group. In addition to that, Master Drilling is 2.0 times more volatile than Lewis Group Limited. It trades about -0.19 of its total potential returns per unit of risk. Lewis Group Limited is currently generating about -0.2 per unit of volatility. If you would invest  825,000  in Lewis Group Limited on September 29, 2024 and sell it today you would lose (41,900) from holding Lewis Group Limited or give up 5.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Master Drilling Group  vs.  Lewis Group Limited

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.

Lewis Group Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lewis Group Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Lewis Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Master Drilling and Lewis Group

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

The idea behind Master Drilling Group and Lewis Group 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.