Correlation Between Master Drilling and Woolworths Holdings

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

Diversification Opportunities for Master Drilling and Woolworths Holdings

0.08

Correlation Coefficient

Master Drilling  Woolworths Holdings

Significant diversification

The 3 months correlation between Master and Woolworths is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Master Drilling Group and Woolworths Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woolworths 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 Woolworths Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woolworths Holdings has no effect on the direction of Master Drilling i.e., Master Drilling and Woolworths Holdings go up and down completely randomly.

Pair Corralation between Master Drilling and Woolworths Holdings

Assuming the 90 days trading horizon Master Drilling Group is expected to generate 1.39 times more return on investment than Woolworths Holdings. However, Master Drilling is 1.39 times more volatile than Woolworths Holdings. It trades about 0.01 of its potential returns per unit of risk. Woolworths Holdings is currently generating about 0.01 per unit of risk. If you would invest  129,647  in Master Drilling Group on September 16, 2024 and sell it today you would earn a total of  853.00  from holding Master Drilling Group or generate 0.66% return on investment over 90 days.

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

Master Drilling Group  vs.  Woolworths Holdings

Master Drilling Group

Risk-Adjusted Performance

2 of 100

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 sound technical and fundamental indicators, Master Drilling is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Woolworths Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Woolworths Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Woolworths Holdings 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 Woolworths Holdings

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

The idea behind Master Drilling Group and Woolworths 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.

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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.