Correlation Between Master Drilling and Pepkor Holdings

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

Diversification Opportunities for Master Drilling and Pepkor Holdings

-0.42

Correlation Coefficient

Master Drilling  Pepkor Holdings

Very good diversification

The 3 months correlation between Master and Pepkor is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Master Drilling Group and Pepkor Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pepkor Holdings 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 Pepkor Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pepkor Holdings has no effect on the direction of Master Drilling i.e., Master Drilling and Pepkor Holdings go up and down completely randomly.

Pair Corralation between Master Drilling and Pepkor Holdings

Assuming the 90 days trading horizon Master Drilling Group is expected to generate 2.11 times more return on investment than Pepkor Holdings. However, Master Drilling is 2.11 times more volatile than Pepkor Holdings. It trades about 0.07 of its potential returns per unit of risk. Pepkor Holdings is currently generating about -0.17 per unit of risk. If you would invest  130,400  in Master Drilling Group on October 22, 2024 and sell it today you would earn a total of  4,600  from holding Master Drilling Group or generate 3.53% 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.  Pepkor Holdings

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.

Pepkor Holdings

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pepkor Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Pepkor Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Master Drilling and Pepkor Holdings

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

The idea behind Master Drilling Group and Pepkor Holdings 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.

Check out your portfolio center.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.