Correlation Between Master Drilling and Trencor

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

Diversification Opportunities for Master Drilling and Trencor

-0.29

Correlation Coefficient

Master Drilling  Trencor

Very good diversification

The 3 months correlation between Master and Trencor is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Master Drilling Group and Trencor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trencor 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 Trencor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trencor has no effect on the direction of Master Drilling i.e., Master Drilling and Trencor go up and down completely randomly.

Pair Corralation between Master Drilling and Trencor

Assuming the 90 days trading horizon Master Drilling is expected to generate 1.08 times less return on investment than Trencor. In addition to that, Master Drilling is 1.36 times more volatile than Trencor. It trades about 0.05 of its total potential returns per unit of risk. Trencor is currently generating about 0.07 per unit of volatility. If you would invest  74,700  in Trencor on October 7, 2024 and sell it today you would earn a total of  5,000  from holding Trencor or generate 6.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Master Drilling Group  vs.  Trencor

Master Drilling Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Master Drilling Group are ranked lower than 3 (%) 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 February 2025.

Trencor

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Trencor 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, Trencor may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Master Drilling and Trencor

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

The idea behind Master Drilling Group and Trencor 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.